65293 Economy Profile: Eritrea © 2012 The International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington, DC 20433 Telephone 202-473-1000 Internet www.worldbank.org All rights reserved. 1 2 3 4 08 07 06 05 A copublication of The World Bank and the International Finance Corporation. This volume is a product of the staff of the World Bank Group. The findings, interpretations and conclusions expressed in this volume do not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. Rights and Permissions The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. 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ISBN: 978-0-8213-8833-4 E-ISBN: 978-0-8213-8834-1 DOI: 10.1596/978-0-8213-8833-4 ISSN: 1729-2638 Printed in the United States Doing Business 2012 Eritrea 3 CONTENTS Introduction .................................................................................................................................. 4 The business environment .......................................................................................................... 5 Starting a business ..................................................................................................................... 14 Dealing with construction permits........................................................................................... 23 Getting electricity ....................................................................................................................... 32 Registering property .................................................................................................................. 37 Getting credit .............................................................................................................................. 46 Protecting investors ................................................................................................................... 53 Paying taxes ................................................................................................................................ 63 Trading across borders .............................................................................................................. 71 Enforcing contracts .................................................................................................................... 80 Resolving insolvency .................................................................................................................. 87 Data notes ................................................................................................................................... 93 Resources on the Doing Business website .............................................................................. 98 Doing Business 2012 Eritrea 4 INTRODUCTION Doing Business sheds light on how easy or difficult it is the paying taxes indicators, which cover the period for a local entrepreneur to open and run a small to January–December 2010). medium-size business when complying with relevant The Doing Business methodology has limitations. Other regulations. It measures and tracks changes in areas important to business—such as an economy’s regulations affecting 10 areas in the life cycle of a proximity to large markets, the quality of its business: starting a business, dealing with construction infrastructure services (other than those related to permits, getting electricity, registering property, trading across borders and getting electricity), the getting credit, protecting investors, paying taxes, security of property from theft and looting, the trading across borders, enforcing contracts and transparency of government procurement, resolving insolvency. macroeconomic conditions or the underlying strength In a series of annual reports Doing Business presents of institutions—are not directly studied by Doing quantitative indicators on business regulations and the Business. The indicators refer to a specific type of protection of property rights that can be compared business, generally a local limited liability company across 183 economies, from Afghanistan to Zimbabwe, operating in the largest business city. Because over time. The data set covers 46 economies in Sub- standard assumptions are used in the data collection, Saharan Africa, 32 in Latin America and the Caribbean, comparisons and benchmarks are valid across 24 in East Asia and the Pacific, 24 in Eastern Europe economies. The data not only highlight the extent of and Central Asia, 18 in the Middle East and North obstacles to doing business; they also help identify the Africa and 8 in South Asia, as well as 31 OECD high- source of those obstacles, supporting policy makers in income economies. The indicators are used to analyze designing regulatory reform. economic outcomes and identify what reforms have More information is available in the full report. Doing worked, where and why. Business 2012 presents the indicators, analyzes their This economy profile presents the Doing Business relationship with economic outcomes and indicators for Eritrea. To allow useful comparison, it recommends regulatory reforms. The data, along with also provides data for other selected economies information on ordering Doing Business 2012, are (comparator economies) for each indicator. The data in available on the Doing Business website at this report are current as of June 1, 2011 (except for http://www.doingbusiness.org. Doing Business 2012 Eritrea 5 THE BUSINESS ENVIRONMENT For policy makers trying to improve their economy’s regulatory environment for business, a good place to ECONOMY OVERVIEW start is to find out how it compares with the regulatory environment in other economies. Doing Business provides an aggregate ranking on the ease of doing Region: Sub-Saharan Africa business based on indicator sets that measure and benchmark regulations applying to domestic small to Income category: Low income medium-size businesses through their life cycle. Economies are ranked from 1 to 183 by the ease of Population: 5,223,994 doing business index. For each economy the index is calculated as the ranking on the simple average of its GNI per capita (US$): 340.00 percentile rankings on each of the 10 topics included in the index in Doing Business 2012: starting a business, DB2012 rank: 180 dealing with construction permits, getting electricity, registering property, getting credit, protecting DB2011 rank: 178 investors, paying taxes, trading across borders, Change in rank: -2 enforcing contracts and resolving insolvency. The ranking on each topic is the simple average of the percentile rankings on its component indicators (see Note: See the data notes for sources and the data notes for more details). 1 definitions. The aggregate ranking on the ease of doing business benchmarks each economy’s performance on the indicators against that of all other economies in the Doing Business sample (figure 1.1). While this ranking tells much about the business environment in an economy, it does not tell the whole story. The ranking on the ease of doing business, and the underlying indicators, do not measure all aspects of the business environment that matter to firms and investors or that affect the competitiveness of the economy. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. 1 Except for the ease of getting credit, for which the percentile rankings on its component indicators are weighted, the depth of credit information index at 37.5% and the strength of legal rights index at 62.5%. Doing Business 2012 Eritrea 6 THE BUSINESS ENVIRONMENT Figure 1.1 Where economies stand in the global ranking on the ease of doing business Source: Doing Business database. Doing Business 2012 Eritrea 7 THE BUSINESS ENVIRONMENT For policy makers, knowing where their economy the regional average (figure 1.2). The economy’s stands in the aggregate ranking on the ease of doing rankings on the topics included in the ease of doing business is useful. Also useful is to know how it ranks business index provide another perspective (figure compared with other economies and compared with 1.3). Figure 1.2 How Eritrea and comparator economies rank on the ease of doing business Source: Doing Business database. Doing Business 2012 Eritrea 8 THE BUSINESS ENVIRONMENT Figure 1.3 How Eritrea ranks on Doing Business topics Source: Doing Business database. Doing Business 2012 Eritrea 9 THE BUSINESS ENVIRONMENT Just as the overall ranking on the ease of doing This measure shows the distance of each economy to business tells only part of the story, so do changes in the “frontier,� a synthetic measure based on the most that ranking. Yearly movements in rankings can efficient practice or highest score observed for each provide some indication of changes in an economy’s Doing Business indicator across all economies and regulatory environment for firms, but they are always years included in the Doing Business sample since relative. An economy’s ranking might change because 2005. Nine areas of business regulation are covered. of developments in other economies. An economy that Comparing the measure for an economy at 2 points in implemented business regulation reforms may fail to time allows users to assess how much the economy’s rise in the rankings (or may even drop) if it is passed regulatory environment as measured by Doing by others whose business regulation reforms had a Business has changed over time—how far it has moved more significant impact as measured by Doing toward (or away from) the most efficient practices and Business. strongest regulations in areas covered by Doing Moreover, year-to-year changes in the overall rankings Business (figure 1.4). The results may show that the do not reflect how the business regulatory pace of change varies widely across the areas environment in an economy has changed over time— measured. They also may show that an economy is or how it has changed in different areas. To aid in relatively close to the frontier in some areas and assessing such changes, Doing Business 2012 relatively far from it in others. introduces the distance to frontier measure. Figure 1.4 How far has Eritrea come in the areas measured by Doing Business? Distance to frontier, 2005 and 2011 Note: For economies added to the Doing Business sample after 2005, the starting point is the year in which they were added: 2006 for Montenegro; 2007 for Brunei Darussalam, Liberia and Luxembourg; 2008 for The Bahamas, Bahrain and Qatar; and 2009 for Cyprus and Kosovo. See the data notes for more details on the distance to frontier measure. Source: Doing Business database. Doing Business 2012 Eritrea 10 THE BUSINESS ENVIRONMENT The absolute values of the indicators tell another part business regulation—such as a regulatory process that of the story (table 1.1). The indicators, on their own or can be completed with a small number of procedures in comparison with the indicators of a good practice in a few days and at a low cost. Comparison of the economy or those of comparator economies in the economy’s indicators today with those in the previous region, may reveal bottlenecks reflected in large year may show where substantial bottlenecks persist— numbers of procedures, long delays or high costs. Or and where they are diminishing. they may reveal unexpected strengths in an area of Table 1.1 Summary of Doing Business indicators for Eritrea Best performer globally Tanzania DB2012 Ethiopia DB2012 Rwanda DB2012 Uganda DB2012 Indicator Eritrea DB2012 Eritrea DB2011 Kenya DB2012 DB2012 Starting a Business (rank) 182 179 99 132 8 123 143 New Zealand (1) Procedures (number) 13 13 5 11 2 12 16 Canada (1)* Time (days) 84 84 9 33 3 29 34 New Zealand (1) Cost (% of income per 62.6 69.2 12.8 37.8 4.7 28.8 84.5 Denmark (0.0)* capita) Paid-in Min. Capital (% of 243.0 268.4 333.5 0.0 0.0 0.0 0.0 82 Economies (0.0)* income per capita) Dealing with Construction Hong Kong SAR, China 183 183 56 37 84 176 109 Permits (rank) (1) Procedures (number) no practice no practice 9 8 12 19 15 Denmark (5) Time (days) no practice no practice 128 125 164 303 125 Singapore (26)* Cost (% of income per no practice no practice 369.1 160.9 312.0 1170.1 946.8 Qatar (1.1) capita) Getting Electricity (rank) 96 94 93 115 50 78 129 Iceland (1) Doing Business 2012 Eritrea 11 Best performer globally Tanzania DB2012 Ethiopia DB2012 Rwanda DB2012 Uganda DB2012 Indicator Eritrea DB2012 Eritrea DB2011 Kenya DB2012 DB2012 Procedures (number) 5 5 4 4 4 4 5 Germany (3)* Time (days) 59 59 95 163 30 109 91 Germany (17) Cost (% of income per 4436.6 4156.7 3386.0 1419.2 4696.8 1040.5 5130.1 Japan (0.0) capita) Registering Property 178 178 113 133 61 158 127 New Zealand (3) (rank) Procedures (number) 11 11 10 8 5 9 13 Portugal (1)* Time (days) 78 78 41 64 25 73 48 Portugal (1) Cost (% of property value) 9.1 9.1 2.1 4.3 6.3 4.4 2.9 Slovak Republic (0.0) Getting Credit (rank) 177 177 150 8 8 98 48 United Kingdom (1)* Strength of legal rights 2 2 4 10 8 8 7 New Zealand (10)* index (0-10) Depth of credit 0 0 2 4 6 0 4 Japan (6)* information index (0-6) Public registry coverage 0.0 0.0 0.2 0.0 1.4 0.0 0.0 Portugal (86.2) (% of adults) Private bureau coverage 0.0 0.0 0.0 4.5 0.0 0.0 3.0 New Zealand (100.0)* (% of adults) Protecting Investors 111 108 122 97 29 97 133 New Zealand (1) (rank) Extent of disclosure index 4 4 4 3 7 3 2 France (10)* (0-10) Extent of director liability 5 5 4 2 9 4 5 Singapore (9)* index (0-10) Doing Business 2012 Eritrea 12 Best performer globally Tanzania DB2012 Ethiopia DB2012 Rwanda DB2012 Uganda DB2012 Indicator Eritrea DB2012 Eritrea DB2011 Kenya DB2012 DB2012 Ease of shareholder suits 5 5 5 10 3 8 5 New Zealand (10)* index (0-10) Strength of investor 4.7 4.7 4.3 5.0 6.3 5.0 4.0 New Zealand (9.7) protection index (0-10) Paying Taxes (rank) 121 117 40 166 19 129 93 Canada (8) Payments (number per 18 18 19 41 18 48 32 Norway (4) year) Time (hours per year) 216 216 198 393 148 172 213 Luxembourg (59) Trading Across Borders 165 164 157 141 155 92 158 Singapore (1) (rank) Documents to export 10 10 7 8 8 6 7 France (2) (number) Hong Kong SAR, China Time to export (days) 50 50 42 26 29 18 37 (5)* Cost to export (US$ per 1431 1431 1760 2055 3275 1255 2880 Malaysia (450) container) Documents to import 12 12 9 7 8 6 9 France (2) (number) Time to import (days) 59 59 44 24 31 24 34 Singapore (4) Cost to import (US$ per 1581 1581 2660 2190 4990 1430 3015 Malaysia (435) container) Enforcing Contracts (rank) 47 48 57 127 39 36 116 Luxembourg (1) Time (days) 405 405 620 465 230 462 490 Singapore (150) Cost (% of claim) 22.6 22.6 15.2 47.2 78.7 14.3 44.9 Bhutan (0.1) Doing Business 2012 Eritrea 13 Best performer globally Tanzania DB2012 Ethiopia DB2012 Rwanda DB2012 Uganda DB2012 Indicator Eritrea DB2012 Eritrea DB2011 Kenya DB2012 DB2012 Procedures (number) 39 39 37 40 24 38 38 Ireland (21)* Resolving Insolvency 183 183 89 92 165 122 63 Japan (1) (rank) Time (years) no practice no practice 3.0 4.5 3.0 3.0 2.2 Ireland (0.4) Cost (% of estate) no practice no practice 15 22 50 22 30 Singapore (1)* Recovery rate (cents on 0.0 0.0 31.4 30.9 3.2 22.0 40.2 Japan (92.7) the dollar) Note: The methodology for the paying taxes indicators changed in Doing Business 2012; see the data notes for details. For these indicators, the best performer globally is the economy that has implemented the most efficient practices in its tax system and is not necessarily the one with the highest ranking. For more information on “no practice� marks, see the data notes for details. * Two or more economies share the top ranking on this indicator. A number shown in place of an economy’s name indicates the number of economies that share the top ranking on the indicator. For a list of these economies, see the Doing Business website (http://www.doingbusiness.org). Source: Doing Business database. Doing Business 2012 Eritrea 14 STARTING A BUSINESS Formal registration of companies has many WHAT THE STARTING A BUSINESS immediate benefits for the companies and for business owners and employees. Legal entities can INDICATORS MEASURE outlive their founders. Resources are pooled as several shareholders join forces to start a company. Procedures to legally start and operate a Formally registered companies have access to company (number) services and institutions from courts to banks as Preregistration (for example, name well as to new markets. And their employees can verification or reservation, notarization) benefit from protections provided by the law. An additional benefit comes with limited liability Registration in the economy’s largest companies. These limit the financial liability of business city company owners to their investments, so personal Postregistration (for example, social security assets of the owners are not put at risk. Where registration, company seal) governments make registration easy, more entrepreneurs start businesses in the formal sector, Time required to complete each procedure creating more good jobs and generating more (calendar days) revenue for the government. Does not include time spent gathering What do the indicators cover? information Doing Business measures the ease of starting a Each procedure starts on a separate day business in an economy by recording all Procedure completed once final document is procedures that are officially required or commonly received done in practice by an entrepreneur to start up and formally operate an industrial or commercial No prior contact with officials business—as well as the time and cost required to Cost required to complete each procedure complete these procedures. It also records the (% of income per capita) paid-in minimum capital that companies must deposit before registration (or within 3 months). Official costs only, no bribes The ranking on the ease of starting a business is No professional fees unless services required the simple average of the percentile rankings on by law the 4 component indicators: procedures, time, cost and paid-in minimum capital requirement. Paid-in minimum capital (% of income per capita) To make the data comparable across economies, Doing Business uses several assumptions about the Deposited in a bank or with a notary before business and the procedures. It assumes that all registration (or within 3 months) information is readily available to the entrepreneur • Has a start-up capital of 10 times income per and that there has been no prior contact with capita. officials. It also assumes that all government and nongovernment entities involved in the process • Has a turnover of at least 100 times income per capita. function without corruption. And it assumes that the business: • Does not qualify for any special benefits. • Is a limited liability company, located in the • Does not own real estate. largest business city. • Is 100% domestically owned. • Conducts general commercial or industrial activities. Doing Business 2012 Eritrea 15 STARTING A BUSINESS Where does the economy stand today? What does it take to start a business in Eritrea? costs 62.6% of income per capita and requires paid-in According to data collected by Doing Business, starting minimum capital of 243.0% of income per capita a business there requires 13 procedures, takes 84 days, (figure 2.1). Figure 2.1 What it takes to start a business in Eritrea Paid-in minimum capital (% of income per capita): 243.0 Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Eritrea 16 STARTING A BUSINESS Globally, Eritrea stands at 182 in the ranking of 183 regional average ranking provide other useful economies on the ease of starting a business (figure information for assessing how easy it is for an 2.2). The rankings for comparator economies and the entrepreneur in Eritrea to start a business. Figure 2.2 How Eritrea and comparator economies rank on the ease of starting a business Source: Doing Business database. Doing Business 2012 Eritrea 17 STARTING A BUSINESS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 2.1). easy (or difficult) it is to start a business in Eritrea That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 2.1 The ease of starting a business in Eritrea over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 179 182 Procedures (number) 13 13 13 13 13 13 13 13 13 Time (days) 91 91 76 76 84 84 84 84 84 Cost (% of income per 179.9 153.5 130.4 115.9 125.8 102.2 76.5 69.2 62.6 capita) Paid-in Min. Capital (% 748.6 638.7 535.2 449.8 488.0 396.7 297.0 268.4 243.0 of income per capita) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Eritrea 18 STARTING A BUSINESS Equally helpful may be the benchmarks provided by Eritrea on ways to improve the ease of starting a the economies that today have the best performance business. And changes in regional averages can show regionally or globally on the procedures, time, cost or where Eritrea is keeping up—and where it is falling paid-in minimum capital required to start a business behind. (figure 2.3). These economies may provide a model for Figure 2.3 Has starting a business become easier over time? Procedures (number) Time (days) Doing Business 2012 Eritrea 19 STARTING A BUSINESS Cost (% of income per capita) Paid-in minimum capital (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In the case of paid-in minimum capital, 82 economies globally and 20 economies in Sub-Saharan Africa have no paid-in minimum capital. Source: Doing Business database. Doing Business 2012 Eritrea 20 STARTING A BUSINESS Economies around the world have taken steps making greater firm satisfaction and savings and more it easier to start a business—streamlining procedures registered businesses, financial resources and job by setting up a one-stop shop, making procedures opportunities. simpler or faster by introducing technology and What business registration reforms has Doing Business reducing or eliminating minimum capital requirements. recorded in Eritrea (table 2.2)? Many have undertaken business registration reforms in stages—and they often are part of a larger regulatory reform program. Among the benefits have been Table 2.2 How has Eritrea made starting a business easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 21 STARTING A BUSINESS What are the details? Underlying the indicators shown in this chapter for STANDARDIZED COMPANY Eritrea is a set of specific procedures—the bureaucratic and legal steps that an entrepreneur must complete to incorporate and register a new City: Asmara firm. These are identified by Doing Business through collaboration with relevant local Legal Form: Private Limited Liability Company professionals and the study of laws, regulations and Start-up capital: 10 times GNI per capita publicly available information on business entry in that economy. Following is a detailed summary of Paid-in minimum capital (% of income per those procedures, along with the associated time capita): 243.0 and cost. These procedures are those that apply to a company matching the standard assumptions (the “standardized company�) used by Doing Business in collecting the data (see the section in this chapter on what the indicators measure). Summary of procedures for starting a business in Eritrea—and the time and cost Time to No. Procedure Cost to complete complete Deposit initial capital in bank account 1 1 day no charge The minimum capital requirement is ERN 15,000 for a private limited liability company and ERN 50,000 for a share company. Search for company name 2 2 days no charge The search is conducted at the Commercial Registry. Notarize company statutes 3 3 days ERN 715.2 At this point, the memorandum and articles of association will have been signed by the shareholders, and a stamp duty will have been paid. Register with the Commercial Registry 4 To Register with the Commercial Registry, five or six copies of the 7 days no charge memorandum and articles of association must be submitted at the License Department of the Ministry of Trade and Industry. Incorporation notice published in official journal An incorporation notice is published (in both Arabic and English) in the 33 days ERN 600 –1000 5 official journal, Hadas Eritrea, announcing the company incorporation. Protestors have 30 days to contest the company’s incorporation and name. Apply for tax identification number at the Inland Revenue Department 7 days 450 6 Once the company registers at the Inland Revenue Department for the Doing Business 2012 Eritrea 22 Time to No. Procedure Cost to complete complete taxpayer identification number, it is recognized as a VAT taxpayer. Obtain tax clearance from Inland Revenue Department 7 1 day no charge Apply for business license at Ministry of Trade and Industry 8 A business license application requires tax clearance and property title 14 days ERN 500 documents. The cost of the business license ranges from ERN 500 to ERN 1,000. * Receive business license inspection from Ministry of Trade and Industry 7 days (included in 9 ERN 500 previous procedure) The business license inspection, required for zoning purposes, may take only a day, but it also will take a day to set up an appointment. Obtain approval from local municipality 10 2 days ERN 100-500 Notify Ministry of Labor and Human Welfare 11 All companies must notify the Ministry of Labor and Human Welfare by 1 day no charge completing the registration form and submitting it to the Ministry for approval. Make a company seal 12 3 days ERN 400 - 800 The practice is not regulated, but the seal will include the tax code for the company. Apply for tax receipts from the Inland Revenue Department ERN 200 for 10 packs 13 10 days The company may either print the receipts directly at the Inland of receipts Revenue Department or obtain permission to print them itself. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Eritrea 23 DEALING WITH CONSTRUCTION PERMITS Regulation of construction is critical to protect the WHAT THE DEALING WITH CONSTRUCTION public. But it needs to be efficient, to avoid PERMITS INDICATORS MEASURE excessive constraints on a sector that plays an important part in every economy. Where complying with building regulations is excessively costly in Procedures to legally build a warehouse time and money, many builders opt out. They may (number) pay bribes to pass inspections or simply build Submitting all relevant documents and illegally, leading to hazardous construction that obtaining all necessary clearances, licenses, puts public safety at risk. Where compliance is permits and certificates simple, straightforward and inexpensive, everyone Completing all required notifications and is better off. receiving all necessary inspections What do the indicators cover? Obtaining utility connections for water, Doing Business records the procedures, time and sewerage and a fixed telephone line cost for a business to obtain all the necessary Registering the warehouse after its approvals to build a simple commercial warehouse completion (if required for use as collateral or in the economy’s largest business city, connect it to for transfer of the warehouse) basic utilities and register the property so that it Time required to complete each procedure can be used as collateral or transferred to another (calendar days) entity. Does not include time spent gathering The ranking on the ease of dealing with information construction permits is the simple average of the Each procedure starts on a separate day percentile rankings on its component indicators: procedures, time and cost. Procedure completed once final document is received To make the data comparable across economies, Doing Business uses several assumptions about the No prior contact with officials business and the warehouse, including the utility Cost required to complete each procedure (% connections. of income per capita) The business: Official costs only, no bribes • Is a limited liability company operating in • Will be connected to water, sewerage the construction business and located in (sewage system, septic tank or their the largest business city. equivalent) and a fixed telephone line. The • Is domestically owned and operated. connection to each utility network will be 10 meters (32 feet, 10 inches) long. • Has 60 builders and other employees. • Will be used for general storage, such as of The warehouse: books or stationery (not for goods requiring • Is a new construction (there was no special conditions). previous construction on the land). • Will take 30 weeks to construct (excluding all • Has complete architectural and technical delays due to administrative and regulatory plans prepared by a licensed architect. requirements). Doing Business 2012 Eritrea 24 DEALING WITH CONSTRUCTION PERMITS Where does the economy stand today? What does it take to comply with the formalities to economies on the ease of dealing with construction build a warehouse in Eritrea? According to data permits (figure 3.1). The rankings for comparator collected by Doing Business, Eritrea receives a “no economies and the regional average ranking provide practice� mark. See the data notes for further details. other useful information for assessing how easy it is for Globally, Eritrea stands at 183 in the ranking of 183 an entrepreneur in Eritrea to legally build a warehouse. Figure 3.1 How Eritrea and comparator economies rank on the ease of dealing with construction permits Source: Doing Business database. Doing Business 2012 Eritrea 25 DEALING WITH CONSTRUCTION PERMITS What are the changes over time? While the most recent Doing Business data reflect how the process have changed—and which have not (table easy (or difficult) it is to deal with construction permits 3.1). That can help identify where the potential for in Eritrea today, data over time show which aspects of improvement is greatest. Table 3.1 The ease of dealing with construction permits in Eritrea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 183 183 no no Procedures (number) no practice no practice no practice no practice no practice practice practice no no Time (days) no practice no practice no practice no practice no practice practice practice Cost (% of income per no no no practice no practice no practice no practice no practice capita) practice practice Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Eritrea 26 DEALING WITH CONSTRUCTION PERMITS Equally helpful may be the benchmarks provided by ways to improve the ease of dealing with construction the economies that today have the best performance permits. And changes in regional averages can show regionally or globally on the procedures, time or cost where Eritrea is keeping up—and where it is falling required to deal with construction permits (figure 3.2). behind. These economies may provide a model for Eritrea on Figure 3.2 Has dealing with construction permits become easier over time? Procedures (number) Time (days) Doing Business 2012 Eritrea 27 DEALING WITH CONSTRUCTION PERMITS Cost (% of income per capita) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Eritrea 28 DEALING WITH CONSTRUCTION PERMITS Smart regulation ensures that standards are met while building safety while keeping compliance costs making compliance easy and accessible to all. reasonable, governments around the world have Coherent and transparent rules, efficient processes and worked on consolidating permitting requirements. adequate allocation of resources are especially What construction permitting reforms has Doing important in sectors where safety is at stake. Business recorded in Eritrea (table 3.2)? Construction is one of them. In an effort to ensure Table 3.2 How has Eritrea made dealing with construction permits easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 29 DEALING WITH CONSTRUCTION PERMITS What are the details? The indicators reported here for Eritrea are based BUILDING A WAREHOUSE on a set of specific procedures—the steps that a company must complete to legally build a warehouse—identified by Doing Business through City : Asmara information collected from experts in construction licensing, including architects, construction Estimated lawyers, construction firms, utility service providers ERN 7,315,000 Warehouse Value : and public officials who deal with building regulations. These procedures are those that apply The procedures, along with the associated time and to a company and structure matching the standard cost, are summarized below. assumptions used by Doing Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for dealing with construction permits in Eritrea —and the time and cost Time to No. Procedure Cost to complete complete Obtain design approval from Municipality 1 30 days ERN 6,000 No practice in 2005–2011. No commercial building permits issued to the private sector. Obtain approval of electricity designs from EEA (Eritrean Electric Authority) 2 22 days no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Hire consultant/supervisor 3 5 days ERN 50 No practice in 2005–2011. No commercial building permits issued to the private sector. Obtain phone line from ERITEL 4 60 days ERN 2,000 No practice in 2005–2011. No commercial building permits issued to the private sector. * Receive inspection by telephone company 5 7 days no charge No practice in 2005–2011. No commercial building permits issued to the private sector. * Obtain water and sewage connection from Water and Sewage authority 6 30 days ERN 6,000 No practice in 2005–2011. No commercial building permits issued to the private sector. * Receive inspection by water department 7 7 days no charge No practice in 2005–2011. No commercial building permits issued to Doing Business 2012 Eritrea 30 Time to No. Procedure Cost to complete complete the private sector. Receive inspection from Labor office - I 8 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Labor office - II 9 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Labor office - III 10 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Labor office - IV 11 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Labor office - V 12 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Municipal technical office - I 13 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Municipal technical office - II 14 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Municipal technical office - III 15 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Municipal technical office - IV 16 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive inspection from Municipal technical office - V 17 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Obtain completion certificate from consultant 18 30 days no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Receive final inspection 19 1 day no charge No practice in 2005–2011. No commercial building permits issued to the private sector. Obtain completion certificate from Municipality 30 days ERN 200 20 Doing Business 2012 Eritrea 31 Time to No. Procedure Cost to complete complete No practice in 2005–2011. No commercial building permits issued to the private sector. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Eritrea 32 GETTING ELECTRICITY Access to reliable and affordable electricity is vital WHAT THE GETTING ELECTRICITY for businesses. To counter weak electricity supply, many firms in developing economies have to rely INDICATORS MEASURE on self-supply, often at a prohibitively high cost. Whether electricity is reliably available or not, the Procedures to obtain an electricity first step for a customer is always to gain access by connection (number) obtaining a connection. Submitting all relevant documents and What do the indicators cover? obtaining all necessary clearances and permits Doing Business records all procedures required for Completing all required notifications and a local business to obtain a permanent electricity receiving all necessary inspections connection and supply for a standardized warehouse, as well as the time and cost to Obtaining external installation works and complete them. These procedures include possibly purchasing material for these works applications and contracts with electricity utilities, Concluding any necessary supply contract and clearances from other agencies and the external obtaining final supply and final connection works. The ranking on the ease of getting electricity is the simple average of Time required to complete each procedure the percentile rankings on its component (calendar days) indicators: procedures, time and cost. To make the Is at least 1 calendar day data comparable across economies, several assumptions are used. Each procedure starts on a separate day The warehouse: Does not include time spent gathering information • Is located in the economy’s largest business city, in an area where other Reflects the time spent in practice, with little warehouses are located. follow-up and no prior contact with officials • Is not in a special economic zone where Cost required to complete each procedure the connection would be eligible for (% of income per capita) subsidization or faster service. Official costs only, no bribes • Has road access. The connection works Excludes value added tax involve the crossing of a road or roads but are carried out on public land. • Is 150 meters long. • Is a new construction being connected to • Is to either the low-voltage or the medium- electricity for the first time. voltage distribution network and either overhead • Has 2 stories, both above ground, with a or underground, whichever is more common in total surface of about 1,300.6 square the economy and in the area where the meters (14,000 square feet), and is built on warehouse is located. The length of any a plot of 929 square meters (10,000 square connection in the customer’s private domain is feet). negligible. The electricity connection: • Involves installing one electricity meter. The monthly electricity consumption will be 0.07 • Is a 3-phase, 4-wire Y, 140-kilovolt-ampere gigawatt-hour (GWh). The internal electrical (kVA) (subscribed capacity) connection. wiring has been completed. Doing Business 2012 Eritrea 33 GETTING ELECTRICITY Where does the economy stand today? What does it take to obtain a new electricity procedures, takes 59 days and costs 4436.6% of connection in Eritrea? According to data collected by income per capita (figure 4.1). Doing Business, getting electricity there requires 5 Figure 4.1 What it takes to obtain an electricity connection in Eritrea Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Eritrea 34 GETTING ELECTRICITY Globally, Eritrea stands at 96 in the ranking of 183 regional average ranking provide another perspective economies on the ease of getting electricity (figure in assessing how easy it is for an entrepreneur in 4.2). The rankings for comparator economies and the Eritrea to connect a warehouse to electricity. Figure 4.2 How Eritrea and comparator economies rank on the ease of getting electricity Source: Doing Business database. Doing Business 2012 Eritrea 35 GETTING ELECTRICITY Even more helpful than rankings for other economies economies, the practices of their utilities may provide a may be the indicators underlying those rankings (table model for Eritrea on ways to improve the ease of 4.1). If obtaining a new electricity connection requires getting electricity. Regional and global averages on fewer procedures, less time or less cost in other these indicators may provide useful benchmarks. Table 4.1 The ease of getting electricity in Eritrea and comparator economies Global average Africa average Sub-Saharan Tanzania Ethiopia Rwanda Eritrea Kenya Indicator Rank 96 93 115 50 78 122 .. Procedures (number) 5 4 4 4 4 5 5 Time (days) 59 95 163 30 109 137 111 Cost (% of income per capita) 4436.6 3386.0 1419.2 4696.8 1040.5 5,429.8 1,942.3 Source: Doing Business database. Doing Business 2012 Eritrea 36 GETTING ELECTRICITY What are the details? The indicators reported here for Eritrea are based on a OBTAINING AN ELECTRICITY CONNECTION set of specific procedures—the steps that an entrepreneur must complete to get a warehouse connected to electricity by the local distribution City: Asmara utility—identified by Doing Business. Data are collected from the distribution utility, then completed and Name of Utility: Eritrean Electricity verified by electricity regulatory agencies and Authority independent professionals such as electrical engineers, The procedures are those that apply to a warehouse electrical contractors and construction companies. The and electricity connection matching the standard electricity distribution utility surveyed is the one assumptions used by Doing Business in collecting the serving the area (or areas) in which warehouses are data (see the section in this chapter on what the located. If there is a choice of distribution utilities, the indicators cover). The procedures, along with the one serving the largest number of customers is associated time and cost, are summarized below. selected. Summary of procedures for getting electricity in Eritrea—and the time and cost Time to No. Procedure Cost to complete complete Customer hires specialized electrician to conduct internal wiring inspection 1 1 calendar day USD 800.0 The utility requires that the customer hire a specialized electrician to inspect internal wiring Customer applies to Inspection Unit of utility for internal wiring inspection and receives internal wiring inspection 2 14 calendar days no charge The customer needs to obtain this inspection before applying for new connection Customer submits application for new connection and awaits external inspection 3 7 calendar days USD 10.0 Documents to be submitted by the customer - registration papers - proof of ownership or tenant, internal inspection certificate Customer receives inspection and estimate and signs supply contract 4 7 calendar days USD 14,274.5 Costs include cost of distribution transformer, materials, labor, overhead and security deposit Utility conducts external connection works, meter installation and electricity starts flowing 5 30 calendar days no charge Utility conducts all external connection works, meter installation and turns electricity on after completion of works. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Eritrea 37 REGISTERING PROPERTY Ensuring formal property rights is fundamental. WHAT THE REGISTERING PROPERTY Effective administration of land is part of that. If INDICATORS MEASURE formal property transfer is too costly or complicated, formal titles might go informal again. And where property is informal or poorly Procedures to legally transfer title on administered, it has little chance of being immovable property (number) accepted as collateral for loans—limiting access to Preregistration (for example, checking for liens, finance. notarizing sales agreement, paying property transfer taxes) What do the indicators cover? Registration in the economy’s largest business Doing Business records the full sequence of city procedures necessary for a business to purchase property from another business and transfer the Postregistration (for example, filing title with the municipality) property title to the buyer’s name. The transaction is considered complete when it is opposable to Time required to complete each procedure third parties and when the buyer can use the (calendar days) property, use it as collateral for a bank loan or Does not include time spent gathering resell it. The ranking on the ease of registering information property is the simple average of the percentile rankings on its component indicators: procedures, Each procedure starts on a separate day time and cost. Procedure completed once final document is received To make the data comparable across economies, several assumptions about the parties to the No prior contact with officials transaction, the property and the procedures are Cost required to complete each procedure used. (% of property value) The parties (buyer and seller): Official costs only, no bribes • Are limited liability companies, 100% No value added or capital gains taxes included domestically and privately owned. • Are located in the periurban area of the economy’s largest business city. • Has no mortgages attached and has been under the same ownership for the past 10 • Have 50 employees each, all of whom are years. nationals. • Consists of 557.4 square meters (6,000 square • Perform general commercial activities. feet) of land and a 10-year-old, 2-story The property (fully owned by the seller): warehouse of 929 square meters (10,000 • Has a value of 50 times income per capita. square feet). The warehouse is in good The sale price equals the value. condition and complies with all safety standards, building codes and legal • Is registered in the land registry or requirements. The property will be transferred cadastre, or both, and is free of title in its entirety. disputes. • Is located in a periurban commercial zone, and no rezoning is required. Doing Business 2012 Eritrea 38 REGISTERING PROPERTY Where does the economy stand today? What does it take to complete a property transfer in takes 78 days and costs 9.1% of the property value Eritrea? According to data collected by Doing Business, (figure 5.1). registering property there requires 11 procedures, Figure 5.1 What it takes to register property in Eritrea Note: For details on the procedures reflected here, see the summary at the end of this chapter. Source: Doing Business database. Doing Business 2012 Eritrea 39 REGISTERING PROPERTY Globally, Eritrea stands at 178 in the ranking of 183 regional average ranking provide other useful economies on the ease of registering property (figure information for assessing how easy it is for an 5.2). The rankings for comparator economies and the entrepreneur in Eritrea to transfer property. Figure 5.2 How Eritrea and comparator economies rank on the ease of registering property Source: Doing Business database. Doing Business 2012 Eritrea 40 REGISTERING PROPERTY What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 5.1). easy (or difficult) it is to register property in Eritrea That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 5.1 The ease of registering property in Eritrea over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 178 178 Procedures (number) 11 11 11 11 11 11 11 11 Time (days) 78 78 78 78 78 78 78 78 Cost (% of property value) 9.2 9.2 9.2 9.2 9.2 9.1 9.1 9.1 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For more information on “no practice� marks, see the data notes for details. Source: Doing Business database. Doing Business 2012 Eritrea 41 REGISTERING PROPERTY Equally helpful may be the benchmarks provided by These economies may provide a model for Eritrea on the economies that today have the best performance ways to improve the ease of registering property. And regionally or globally on the procedures, time or cost changes in regional averages can show where Eritrea is required to complete a property transfer (figure 5.3). keeping up—and where it is falling behind. Figure 5.3 Has registering property become easier over time? Procedures (number) Time (days) Doing Business 2012 Eritrea 42 REGISTERING PROPERTY Cost (% of property value) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Eritrea 43 REGISTERING PROPERTY Economies worldwide have been making it easier for have cut the time required substantially—enabling entrepreneurs to register and transfer property—such buyers to use or mortgage their property earlier. What as by computerizing land registries, introducing time property registration reforms has Doing Business limits for procedures and setting low fixed fees. Many recorded in Eritrea (table 5.2)? Table 5.2 How has Eritrea made registering property easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 44 REGISTERING PROPERTY What are the details? The indicators reported here are based on a set of STANDARD PROPERTY TRANSFER specific procedures—the steps that a buyer and seller must complete to transfer the property to the buyer’s name—identified by Doing Business City: Asmara through information collected from local property Property Value: 308,605.2 lawyers, notaries and property registries. These procedures are those that apply to a transaction The procedures, along with the associated time and matching the standard assumptions used by Doing cost, are summarized below. Business in collecting the data (see the section in this chapter on what the indicators cover). Summary of procedures for registering property in Eritrea—and the time and cost Time to No. Procedure Cost to complete complete * Obtain tax clearance from Inland Revenue 7 days 1 (simultaneous with 15 ERN There are no costs involved unless there are unpaid taxes for the proc. 2,3,4 & 5) concerned building and other buildings owned by the owner. * Tax clearance from Commercial bank 1 day (simultaneous 2 with proc. 1,3,4 & 50 ERN 5) * Tax clearance from the bank for unpaid loans from housing and 1 day (simultaneous commercial bank with proc. 1,2,4 & 20 ERN 3 5) * Tax clearance from Municipality 1 day (simultaneous 25 ERN (1-5 days); 4 with proc. 1,2,3 & 50 ERN (express 1 5) day) * Obtain mortgage clearance from Cadastral Office 1 day (simultaneous 5 with proc. 1,2, 3 & 15 ERN The clearance secures that the property is free from any mortgage and 4) pledge. Submit all registration documents and clearances to the Notary Public and define tax to be paid 6 The Public Notary examines all the documents thoroughly, with all the 1 day no cost clearances and delivers the documents, particularly the previous survey plan, to the Department of Infrastructure for new plan (from the previous owner to the new owner). Creates a map of land 7 2 months no cost The Department of Infrastructure prepares a map and ensures compliance with all building regulations. The Department of Doing Business 2012 Eritrea 45 Time to No. Procedure Cost to complete complete Infrastructure sends the new map to the Public Notary, and the Public Notary, based on the declared price of agreement or on the recorded value in the computer (database), orders the buyer or any beneficiary to pay 9% of property value. Buyer pays tax at Municipality 8 1 day 5% for Municipality The buyer pays the necessary tax at the Municipality. Buyer pays tax at Inland Revenue 4% of property value 9 1 day as valuated by The buyer pays the necessary tax at the Inland Revenue. committee The Public Notary approved the contract in front of the parties and two witnesses The Public Notary reads the content of the contract in front of the parties included in the 9% 10 1 day and witnesses. All parties must give their own free will for the contract to of property value be effective. The Notary duly monitors the documents particularly whether the transfer payment is fully paid or not, and sends all the relevant documents to the Cadastral Office. Submit registration of title at the Cadastre 11 1 week 150 ERN At this point in the process the buyer obtains full possession of the title. They give copies of the title to the Cadastre and the Municipality. * Takes place simultaneously with another procedure. Source: Doing Business database. Doing Business 2012 Eritrea 46 GETTING CREDIT Two types of frameworks can facilitate access to WHAT THE GETTING CREDIT INDICATORS credit and improve its allocation: credit information MEASURE systems and the legal rights of borrowers and lenders in collateral and bankruptcy laws. Credit information systems enable lenders to view a Strength of legal rights index (0–10) potential borrower’s financial history (positive or Protection of rights of borrowers and lenders negative)—valuable information to consider when through collateral laws assessing risk. And they permit borrowers to Protection of secured creditors’ rights through establish a good credit history that will allow easier bankruptcy laws access to credit. Sound collateral laws enable businesses to use their assets, especially movable Depth of credit information index (0–6) property, as security to generate capital—while Scope and accessibility of credit information strong creditors’ rights have been associated with distributed by public credit registries and higher ratios of private sector credit to GDP. private credit bureaus What do the indicators cover? Public credit registry coverage (% of adults) Doing Business assesses the sharing of credit Number of individuals and firms listed in information and the legal rights of borrowers and public credit registry as percentage of adult lenders with respect to secured transactions population through 2 sets of indicators. The depth of credit Private credit bureau coverage (% of adults) information index measures rules and practices Number of individuals and firms listed in affecting the coverage, scope and accessibility of largest private credit bureau as percentage of credit information available through a public credit adult population registry or a private credit bureau. The strength of legal rights index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. Doing Business uses case scenarios to determine • Has 100 employees. the scope of the secured transactions system, • Is 100% domestically owned, as is the lender. involving a secured borrower and a secured lender and examining legal restrictions on the use of The ranking on the ease of getting credit is based on movable collateral. These scenarios assume that the the percentile rankings on its component indicators: borrower: the depth of credit information index (weighted at 37.5%) and the strength of legal rights index • Is a private, limited liability company. (weighted at 62.5%). • Has its headquarters and only base of operations in the largest business city. Doing Business 2012 Eritrea 47 GETTING CREDIT Where does the economy stand today? How well do the credit information system and Globally, Eritrea stands at 177 in the ranking of 183 collateral and bankruptcy laws in Eritrea facilitate economies on the ease of getting credit (figure 6.1). access to credit? The economy has a score of 0 on the The rankings for comparator economies and the depth of credit information index and a score of 2 on regional average ranking provide other useful the strength of legal rights index (see the summary of information for assessing how well regulations and scoring at the end of this chapter for details). Higher institutions in Eritrea support lending and borrowing. scores indicate more credit information and stronger legal rights for borrowers and lenders. Figure 6.1 How Eritrea and comparator economies rank on the ease of getting credit Source: Doing Business database. Doing Business 2012 Eritrea 48 GETTING CREDIT What are the changes over time? While the most recent Doing Business data reflect how institutions and regulations have been strengthened— well the credit information system and collateral and and where they have not (table 6.1). That can help bankruptcy laws in Eritrea support lending and identify where the potential for improvement is borrowing today, data over time can help show where greatest. Table 6.1 The ease of getting credit in Eritrea over time By Doing Business report year Indicator DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. 177 177 Strength of legal rights 2 2 2 2 2 2 2 2 index (0-10) Depth of credit 0 0 0 0 0 0 0 0 information index (0-6) Public registry coverage n.a. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (% of adults) Private bureau n.a. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 coverage (% of adults) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Eritrea 49 GETTING CREDIT One way to put an economy’s getting credit indicators index for Eritrea in 2011 and shows the number of into context is to see where the economy stands in the other economies having the same score in 2011. distribution of scores across other economies. Figure Figure 6.3 shows the same thing for the depth of credit 6.2 highlights the score on the strength of legal rights information index. Figure 6.2 Have legal rights for borrowers and lenders Figure 6.3 Have the coverage and accessibility of credit become stronger? information grown? Number of economies with each score on strength of legal Number of economies with each score on depth of credit rights index (0–10), 2011 information index (0–6), 2011 Source: Doing Business database. Source: Doing Business database. Doing Business 2012 Eritrea 50 GETTING CREDIT When economies strengthen the legal rights of lenders credit information, they can increase entrepreneurs’ and borrowers under collateral and bankruptcy laws, access to credit. What credit reforms has Doing and increase the scope, coverage and accessibility of Business recorded in Eritrea (table 6.2)? Table 6.2 How has Eritrea made getting credit easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 51 GETTING CREDIT What are the details? The getting credit indicators reported here for Eritrea The data on the legal rights of borrowers and lenders are based on detailed information collected in that are gathered through a survey of financial lawyers and economy. The data on credit information sharing are verified through analysis of laws and regulations as collected through a survey of a public credit registry or well as public sources of information on collateral and private credit bureau (if one exists). To construct the bankruptcy laws. For the strength of legal rights index, depth of credit information index, a score of 1 is a score of 1 is assigned for each of 8 aspects related to assigned for each of 6 features of the public credit legal rights in collateral law and 2 aspects in registry or private credit bureau (see summary of bankruptcy law. scoring below). Summary of scoring for the getting credit indicators in Eritrea Sub-Saharan Indicator Eritrea OECD high income Africa Strength of legal rights index (0-10) 2 6 7 Depth of credit information index (0-6) 0 2 5 Public registry coverage (% of adults) 0.0 3.2 9.5 Private bureau coverage (% of adults) 0.0 5.0 63.9 Strength of legal rights index (0–10) Index score: 2 Can any business use movable assets as collateral while keeping possession of the assets; Yes and any financial institution accept such assets as collateral ? Does the law allow businesses to grant a non possessory security right in a single category of No movable assets, without requiring a specific description of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of No its assets, without requiring a specific description of collateral? May a security right extend to future or after-acquired assets, and may it extend No automatically to the products, proceeds or replacements of the original assets ? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; and can the collateral agreement No include a maximum amount for which the assets are encumbered? Is a collateral registry in operation, that is unified geographically and by asset type, with an No electronic database indexed by debtor's names? Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No debtor defaults outside an insolvency procedure? Doing Business 2012 Eritrea 52 Strength of legal rights index (0–10) Index score: 2 Are secured creditors paid first (i.e. before general tax claims and employee claims) when a No business is liquidated? Are secured creditors either not subject to an automatic stay or moratorium on enforcement procedures when a debtor enters a court-supervised reorganization procedure, or the law Yes provides secured creditors with grounds for relief from an automatic stay or Does the law allow parties to agree in a collateral agreement that the lender may enforce its No security right out of court, at the time a security interest is created? Private credit Public credit Depth of credit information index (0–6) Index score: 0 bureau registry Are data on both firms and individuals distributed? No No 0 Are both positive and negative data distributed? No No 0 Does the registry distribute credit information from retailers, trade creditors or utility companies as well as No No 0 financial institutions? Are more than 2 years of historical credit information No No 0 distributed? Is data on all loans below 1% of income per capita No No 0 distributed? Is it guaranteed by law that borrowers can inspect No No 0 their data in the largest credit registry? Note: An economy receives a score of 1 if there is a "yes" to either private bureau or public registry. Coverage Private credit bureau Public credit registry Number of firms 0 0 Number of individuals 0 0 Source: Doing Business database. Doing Business 2012 Eritrea 53 PROTECTING INVESTORS Investor protections matter for the ability of WHAT THE PROTECTING INVESTORS companies to raise the capital they need to grow, INDICATORS MEASURE innovate, diversify and compete. If the laws do not provide such protections, investors may be reluctant to invest unless they become the controlling Extent of disclosure index (0–10) shareholders. Strong regulations clearly define Who can approve related-party transactions related-party transactions, promote clear and efficient Disclosure requirements in case of related- disclosure requirements, require shareholder party transactions participation in major decisions of the company and set clear standards of accountability for company Extent of director liability index (0–10) insiders. Ability of shareholders to hold interested What do the indicators cover? parties and members of the approving body liable in case of related-party transactions Doing Business measures the strength of minority Available legal remedies (damages, repayment shareholder protections against directors’ use of of profits, fines, imprisonment and rescission corporate assets for personal gain—or self-dealing. of the transaction) The indicators distinguish 3 dimensions of investor protections: transparency of related-party Ability of shareholders to sue directly or transactions (extent of disclosure index), liability for derivatively self-dealing (extent of director liability index) and Ease of shareholder suits index (0–10) shareholders’ ability to sue officers and directors for Access to internal corporate documents misconduct (ease of shareholder suits index). The (directly or through a government inspector) ranking on the strength of investor protection index is the simple average of the percentile rankings on Documents and information available during these 3 indices. To make the data comparable across trial economies, a case study uses several assumptions Strength of investor protection index (0–10) about the business and the transaction. Simple average of the extent of disclosure, The business (Buyer): extent of director liability and ease of shareholder suits indices • Is a publicly traded corporation listed on the economy’s most important stock exchange (or at least a large private company with multiple the company purchase used trucks from another shareholders). company he owns. • Has a board of directors and a chief executive • The price is higher than the going price for used officer (CEO) who may legally act on behalf of trucks, but the transaction goes forward. Buyer where permitted, even if this is not specifically required by law. • All required approvals are obtained, and all required disclosures made, though the transaction The transaction involves the following details: is prejudicial to Buyer. • Mr. James, a director and the majority • Shareholders sue the interested parties and the shareholder of the company, proposes that members of the board of directors. Doing Business 2012 Eritrea 54 PROTECTING INVESTORS Where does the economy stand today? How strong are investor protections in Eritrea? The index (figure 7.1). While the indicator does not economy has a score of 4.7 on the strength of investor measure all aspects related to the protection of protection index, with a higher score indicating minority investors, a higher ranking does indicate that stronger protections (see the summary of scoring at an economy’s regulations offer stronger investor the end of this chapter for details). protections against self-dealing in the areas measured. Globally, Eritrea stands at 111 in the ranking of 183 economies on the strength of investor protection Figure 7.1 How Eritrea and comparator economies rank on the strength of investor protection index Source: Doing Business database. Doing Business 2012 Eritrea 55 PROTECTING INVESTORS What are the changes over time? While the most recent Doing Business data reflect how ranking on the strength of investor protection index well regulations in Eritrea protect minority investors over time shows whether the economy is slipping today, data over time show whether the protections behind other economies in investor protections—or have been strengthened (table 7.1). And the global surpassing them. Table 7.1 The strength of investor protections in Eritrea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 108 111 Extent of disclosure 4 4 4 4 4 4 4 index (0-10) Extent of director 5 5 5 5 5 5 5 liability index (0-10) Ease of shareholder 5 5 5 5 5 5 5 suits index (0-10) Strength of investor 4.7 4.7 4.7 4.7 4.7 4.7 4.7 protection index (0-10) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Eritrea 56 PROTECTING INVESTORS But the overall ranking on the strength of investor ease of shareholder suits indices may also be revealing protection index tells only part of the story. Economies (figure 7.2). Equally interesting may be the changes may offer strong protections in some areas but not over time in the regional average scores for those others. So the scores recorded over time for Eritrea on indices. the extent of disclosure, extent of director liability and Figure 7.2 Have investor protections become stronger? Strength of investor protection index (0-10) Extent of disclosure index (0-10) Doing Business 2012 Eritrea 57 PROTECTING INVESTORS Extent of director liability index (0-10) Ease of shareholder suits index (0-10) Note: The higher the score, the stronger the investor protections. The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Eritrea 58 PROTECTING INVESTORS Economies with the strongest protections of minority time. So reforms to strengthen investor protections investors from self-dealing require more disclosure may move ahead on different fronts—such as through and define clear duties for directors. They also have new or amended company laws or civil procedure well-functioning courts and up-to-date procedural rules. What investor protection reforms has Doing rules that give minority investors the means to prove Business recorded in Eritrea (table 7.2)? their case and obtain a judgment within a reasonable Table 7.2 How has Eritrea strengthened investor protections—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 59 PROTECTING INVESTORS What are the details? The protecting investors indicators reported here for shareholder suits indices, a score is assigned for each Eritrea are based on detailed information collected of a range of conditions relating to disclosure, director through a survey of corporate and securities lawyers liability and shareholder suits in a standard case study and are based on securities regulations, company laws transaction (see the notes at the end of this chapter). and court rules of evidence. To construct the extent of The summary below shows the details underlying the disclosure, extent of director liability and ease of scores for Eritrea. Summary of scoring for the protecting investors indicators in Eritrea Sub-Saharan Indicator Eritrea OECD high income Africa Extent of disclosure index (0-10) 4 5 6 Extent of director liability index (0-10) 5 4 5 Ease of shareholder suits index (0-10) 5 5 7 Strength of investor protection index (0-10) 4.7 4.5 6.0 Score Extent of disclosure index (0-10) 4 What corporate body provides legally sufficient approval for the transaction? 1 Whether disclosure of the conflict of interest by Mr. James to the board of directors is 1 required? Whether immediate disclosure of the transaction to the public and/or shareholders is 0 required? Whether disclosure of the transaction in published periodic filings (annual reports) is 1 required? Whether an external body must review the terms of the transaction before it takes place? 1 Extent of director liability index (0-10) 5 Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold Mr. James liable for the damage that the Buyer-Seller 1 transaction causes to the company? Whether shareholders can hold members of the approving body liable for the damage that 1 the Buyer-Seller transaction causes to the company? Whether a court can void the transaction upon a successful claim by a shareholder plaintiff? 0 Doing Business 2012 Eritrea 60 Score Whether Mr. James pays damages for the harm caused to the company upon a successful 1 claim by the shareholder plaintiff? Whether Mr. James repays profits made from the transaction upon a successful claim by the 1 shareholder plaintiff? Whether fines and imprisonment can be applied against Mr. James? 0 Ease of shareholder suits index (0-10) 5 Whether shareholders owning 10% or less of Buyer's shares can inspect transaction 0 documents before filing suit? Whether shareholders owning 10% or less of Buyer's shares can request an inspector to 0 investigate the transaction? Whether the plaintiff can obtain any documents from the defendant and witnesses during 4 trial? Whether the plaintiff can request categories of documents from the defendant without 0 identifying specific ones? Whether the plaintiff can directly question the defendant and witnesses during trial? 0 Whether the level of proof required for civil suits is lower than that of criminal cases? 1 Strength of investor protection index (0-10) 4.7 Source: Doing Business database. Notes: Extent of disclosure index (0–10) Scoring for the extent of disclosure index is based on 5 components: Which corporate body can provide legally sufficient approval for the transaction 0 = CEO or managing director alone; 1 = shareholders or board of directors vote and Mr. James can vote; 2 = board of directors votes and Mr. James cannot vote; 3 = shareholders vote and Mr. James cannot vote. Whether disclosure of the conflict of interest by Mr. James to the board of directors is required 0 = no disclosure; 1 = disclosure of the existence of a conflict without any specifics; 2 = full disclosure of all material facts. Whether immediate disclosure of the transaction to the public, the regulator or the shareholders is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Whether disclosure of the transaction in the annual report is required 0 = no disclosure; 1 = disclosure on the transaction only; 2 = disclosure on the transaction and Mr. James’s conflict of interest. Doing Business 2012 Eritrea 61 Whether it is required that an external body (for example, an external auditor) review the transaction before it takes place 0 = no; 1 = yes. Extent of director liability index (0–10) Scoring for the extent of director liability index is based on 7 components: Whether shareholders can sue directly or derivatively for the damage that the Buyer-Seller transaction causes to the company 0 = suits are unavailable or available only for shareholders holding more than 10% of the company’s share capital; 1 = direct or derivative suits available for shareholders holding 10% of share capital or less. Whether shareholders can hold Mr. James liable for the damage that the transaction causes to the company 0 = Mr. James is not liable or is liable only if he acted fraudulently or in bad faith; 1 = Mr. James is liable if he influenced the approval or was negligent; 2 = Mr. James is liable if the transaction is unfair or prejudicial to the other shareholders. Whether shareholders can hold the approving body (the CEO or members of the board of directors) liable for the damage that the transaction causes to the company 0 = members of the approving body are either not liable or liable only if they acted fraudulently or in bad faith; 1 = liable for negligence in the approval of the transaction; 2 = liable if the transaction is unfair or prejudicial to the other shareholders. Whether a court can void the transaction upon a successful claim by a shareholder plaintiff 0 = rescission is unavailable or available only in case of Seller’s fraud or bad faith; 1 = rescission is available when the transaction is oppressive or prejudicial to the other shareholders; 2 = rescission is available when the transaction is unfair or entails a conflict of interest. Whether Mr. James pays damages for the harm caused to the company upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether Mr. James repays profits made from the transaction upon a successful claim by the shareholder plaintiff 0 = no; 1 = yes. Whether both fines and imprisonment can be applied against Mr. James 0 = no; 1 = yes. Ease of shareholder suits index (0–10) Scoring for the ease of shareholder suits index is based on 6 components: What range of documents is available to the plaintiff from the defendant and witnesses during trial Score of 1 for each of the following: information that the defendant has indicated he intends to rely on for his defense; information that directly proves specific facts in the plaintiff’s claim; any information relevant to the subject matter of the claim; and any information that may lead to the discovery of relevant information. Doing Business 2012 Eritrea 62 Whether the plaintiff can directly examine the defendant and witnesses during trial 0 = no; 1 = yes, with prior approval by the court of the questions posed; 2 = yes, without prior approval. Whether the plaintiff can obtain categories of relevant documents from the defendant without identifying each document specifically 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital can request that a government inspector investigate the transaction without filing suit in court 0 = no; 1 = yes. Whether shareholders owning 10% or less of the company’s share capital have the right to inspect the transaction documents before filing suit 0 = no; 1 = yes. Whether the standard of proof for civil suits is lower than that for a criminal case 0 = no; 1 = yes. Strength of investor protection index (0–10) Simple average of the extent of disclosure, extent of director liability and ease of shareholder suits indices. Doing Business 2012 Eritrea 63 PAYING TAXES Taxes are essential. They fund the public amenities, WHAT THE PAYING TAXES INDICATORS infrastructure and services that are crucial for a MEASURE properly functioning economy. But the level of tax rates needs to be carefully chosen—and needless complexity in tax rules avoided. According to Tax payments for a manufacturing company Doing Business data, in economies where it is more in 2010 (number per year adjusted for difficult and costly to pay taxes, larger shares of electronic or joint filing and payment) economic activity end up in the informal sector— Total number of taxes and contributions paid, where businesses pay no taxes at all. including consumption taxes (value added tax, sales tax or goods and service tax) What do the indicators cover? Method and frequency of filing and payment Using a case scenario, Doing Business measures the taxes and mandatory contributions that a Time required to comply with 3 major taxes medium-size company must pay in a given year as (hours per year) well as the administrative burden of paying taxes Collecting information and computing the tax and contributions. This case scenario uses a set of payable financial statements and assumptions about Completing tax return forms, filing with transactions made over the year. Information is proper agencies also compiled on the frequency of filing and payments as well as time taken to comply with tax Arranging payment or withholding laws. The ranking on the ease of paying taxes is Preparing separate tax accounting books, if the simple average of the percentile rankings on required its component indicators: number of annual Total tax rate (% of profit before all taxes) payments, time and total tax rate, with a threshold 2 being applied to the total tax rate. To make the Profit or corporate income tax data comparable across economies, several Social contributions and labor taxes paid by assumptions about the business and the taxes and the employer contributions are used. Property and property transfer taxes • TaxpayerCo is a medium-size business that Dividend, capital gains and financial started operations on January 1, 2009. transactions taxes • The business starts from the same financial Waste collection, vehicle, road and other taxes position in each economy. All the taxes and mandatory contributions paid during the second year of operation are recorded. • Taxes and mandatory contributions include • Taxes and mandatory contributions are corporate income tax, turnover tax and all measured at all levels of government. labor taxes and contributions paid by the company. • A range of standard deductions and exemptions are also recorded. 2 The threshold is defined as the highest total tax rate among the top 30% of economies in the ranking on the total tax rate. It will be calculated and adjusted on a yearly basis. The threshold is not based on any underlying theory. Instead, it is intended to mitigate the effect of very low tax rates on the ranking on the ease of paying taxes. Doing Business 2012 Eritrea 64 PAYING TAXES Where does the economy stand today? What is the administrative burden of complying with Globally, Eritrea stands at 121 in the ranking of 183 taxes in Eritrea—and how much do firms pay in taxes? economies on the ease of paying taxes (figure 8.1). The On average, firms make 18 tax payments a year, spend rankings for comparator economies and the regional 216 hours a year filing, preparing and paying taxes and average ranking provide other useful information for pay total taxes amounting to 8.8% of profit (see the assessing the tax compliance burden for businesses in summary at the end of this chapter for details). Eritrea. Figure 8.1 How Eritrea and comparator economies rank on the ease of paying taxes Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Eritrea 65 PAYING TAXES What are the changes over time? While the most recent Doing Business data reflect how process have changed — and which have not (table easy (or difficult) it is to comply with tax rules in Eritrea 8.1). That can help identify where the potential for today, data over time show which aspects of the easing tax compliance is greatest. Table 8.1 The ease of paying taxes in Eritrea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 117 121 Payments (number per 18 18 18 18 18 18 18 year) Time (hours per year) 216 216 216 216 216 216 216 Total tax rate (% profit) 84.5 84.5 84.5 84.5 84.5 84.5 84.5 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the rank on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Eritrea 66 PAYING TAXES Equally helpful may be the benchmarks provided by ways to ease the administrative burden of tax the economies that today have the best performance compliance. And changes in regional averages can regionally or globally on the number of payments or show where Eritrea is keeping up—and where it is the time required to prepare and file taxes (figure 8.2). falling behind. These economies may provide a model for Eritrea on Figure 8.2 Has paying taxes become easier over time? Payments (number per year) Time (hours per year) Doing Business 2012 Eritrea 67 PAYING TAXES Total tax rate (% of profit) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. The best performer globally on an indicator has implemented the most efficient practices in its tax system but is not necessarily the one with the highest ranking on the indicator. In some cases 2 or more economies share the top regional ranking on an indicator. DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Eritrea 68 PAYING TAXES Economies around the world have made paying taxes concrete results. Some economies simplifying tax faster and easier for businesses—such as by payment and reducing rates have seen tax revenue consolidating filings, reducing the frequency of rise. What tax reforms has Doing Business recorded in payments or offering electronic filing and payment. Eritrea (table 8.2)? Many have lowered tax rates. Changes have brought Table 8.2 How has Eritrea made paying taxes easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 69 PAYING TAXES What are the details? The indicators reported here for Eritrea are based on a completed during the year. Respondents are asked standard set of taxes and contributions that would be how much in taxes and mandatory contributions the paid by the case study company used by Doing business must pay and what the process is for doing Business in collecting the data (see the section in this so. The taxes and contributions paid are listed in the chapter on what the indicators cover). Tax practitioners summary below, along with the associated number of are asked to review standard financial statements as payments, time and tax rate. well as a standard list of transactions that the company Summary of tax rates and administrative burden in Eritrea Sub-Saharan Indicator Eritrea OECD high income Africa Payments (number per year) 18 37 13 Time (hours per year) 216 318 186 Profit tax (%) 8.8 18.1 15.4 Labor tax and contributions (%) 0.0 13.5 24.0 Other taxes (%) 75.8 25.5 3.2 Total tax rate (% profit) 84.5 57.1 42.7 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Sales tax 12 96 5.00% purchases 73.7 taxable Corporate income tax 1 24 30.0% 7.7 profit ERN 1.85 Municipality tax on land 1 0 per square land area 1 meter Municipality tax on taxable 1 0 4.0% 1 earnings profit ERN 1.75 Municipality tax on building 1 0 per square 0.8 property area meter ERN 0.4 per building Garbage fee 1 0 square 0.2 area meter Doing Business 2012 Eritrea 70 Total tax Notes on Tax or mandatory Payments Notes on Time Statutory Tax base rate (% of total tax contribution (number) payments (hours) tax rate profit) rate Vehicle tax 1 0 fixed fee 0.1 Personal income tax 0 96 0 withheld Totals 18 216 84.5 Note: DB2012 rankings reflect changes to the methodology. For all economies with a total tax rate below the threshold of 32.5% applied in DB2012, the total tax rate is set at 32.5% for the purpose of calculating the ranking on the ease of paying taxes. Source: Doing Business database. Doing Business 2012 Eritrea 71 TRADING ACROSS BORDERS In today’s globalized world, making trade between WHAT THE TRADING ACROSS BORDERS economies easier is increasingly important for INDICATORS MEASURE business. Excessive document requirements, burdensome customs procedures, inefficient port operations and inadequate infrastructure all lead to Documents required to export and import extra costs and delays for exporters and importers, (number) stifling trade potential. Research shows that Bank documents exporters in developing countries gain more from Customs clearance documents a 10% drop in their trading costs than from a similar reduction in the tariffs applied to their Port and terminal handling documents products in global markets. Transport documents What do the indicators cover? Time required to export and import (days) Doing Business measures the time and cost Obtaining all the documents (excluding tariffs) associated with exporting and Inland transport and handling importing a standard shipment of goods by ocean transport, and the number of documents necessary Customs clearance and inspections to complete the transaction. The indicators cover Port and terminal handling procedural requirements such as documentation requirements and procedures at customs and other Does not include ocean transport time regulatory agencies as well as at the port. They also Cost required to export and import (US$ per cover trade logistics, including the time and cost of container) inland transport to the largest business city. The All documentation ranking on the ease of trading across borders is the simple average of the percentile rankings on its Inland transport and handling component indicators: documents, time and cost Customs clearance and inspections to export and import. Port and terminal handling To make the data comparable across economies, Official costs only, no bribes Doing Business uses several assumptions about the business and the traded goods. The business: • Is of medium size and employs 60 people. • Do not require refrigeration or any other • Is located in the periurban area of the special environment. economy’s largest business city. • Do not require any special phytosanitary or • Is a private, limited liability company, environmental safety standards other than domestically owned, formally registered accepted international standards. and operating under commercial laws and regulations of the economy. • Are one of the economy’s leading export or import products. The traded goods: • Are transported in a dry-cargo, 20-foot full • Are not hazardous nor do they include container load. military items. Doing Business 2012 Eritrea 72 TRADING ACROSS BORDERS Where does the economy stand today? What does it take to export or import in Eritrea? Globally, Eritrea stands at 165 in the ranking of 183 According to data collected by Doing Business, economies on the ease of trading across borders exporting a standard container of goods requires 10 (figure 9.1). The rankings for comparator economies documents, takes 50 days and costs $1431. Importing and the regional average ranking provide other useful the same container of goods requires 12 documents, information for assessing how easy it is for a business takes 59 days and costs $1581 (see the summary of in Eritrea to export and import goods. procedures and documents at the end of this chapter for details). Figure 9.1 How Eritrea and comparator economies rank on the ease of trading across borders Source: Doing Business database. Doing Business 2012 Eritrea 73 TRADING ACROSS BORDERS What are the changes over time? While the most recent Doing Business data reflect how process have changed—and which have not (table 9.1). easy (or difficult) it is to export or import in Eritrea That can help identify where the potential for today, data over time show which aspects of the improvement is greatest. Table 9.1 The ease of trading across borders in Eritrea over time By Doing Business report year Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. 164 165 Documents to export 10 10 10 10 10 10 10 (number) Time to export (days) 59 59 59 50 50 50 50 Cost to export (US$ per 1,331 1,331 1,331 1,431 1,431 1,431 1,431 container) Documents to import 12 12 12 12 12 12 12 (number) Time to import (days) 69 69 69 60 60 59 59 Cost to import (US$ per 1,581 1,581 1,581 1,581 1,581 1,581 1,581 container) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Equally helpful may be the benchmarks provided by economies may provide a model for Eritrea on ways to the economies that today have the best performance improve the ease of trading across borders. And regionally or globally on the documents, time or cost changes in regional averages can show where Eritrea is required to export or import (figure 9.2). These keeping up—and where it is falling behind. Doing Business 2012 Eritrea 74 TRADING ACROSS BORDERS Figure 9.2 Has trading across borders become easier over time? Documents to export (number) Time to export (days) Doing Business 2012 Eritrea 75 TRADING ACROSS BORDERS Cost to export (US$ per container) Documents to import (number) Doing Business 2012 Eritrea 76 TRADING ACROSS BORDERS Time to import (days) Cost to import (US$ per container) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Eritrea 77 TRADING ACROSS BORDERS In economies around the world, trading across borders systems. These changes help improve the trading as measured by Doing Business has become faster and environment and boost firms’ international easier over the years. Governments have introduced competitiveness. What trade reforms has Doing tools to facilitate trade—including single windows, Business recorded in Eritrea (table 9.2)? risk-based inspections and electronic data interchange Table 9.2 How has Eritrea made trading across borders easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. The infrastructure at Massawa port was upgraded as well as DB2009 the roads between Massawa and the capital, Asmara, facilitating trade. Note: For information on reforms in earlier years (back to DB2006), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 78 TRADING ACROSS BORDERS What are the details? The indicators reported here for Eritrea are based on a freight forwarders, shipping lines, customs brokers, set of specific procedural requirements for trading a port officials and banks. The procedural requirements, standard shipment of goods by ocean transport (see and the associated time and cost, for exporting and the section in this chapter on what the indicators importing a standard shipment of goods are listed in cover). Information on the procedures as well as the the summary below, along with the required required documents and the time and cost to documents. complete each procedure is collected from local Summary of procedures and documents for trading across borders in Eritrea Sub-Saharan Indicator Eritrea OECD high income Africa Documents to export (number) 10 8 4 Time to export (days) 50 31 10 Cost to export (US$ per container) 1431 1,960 1,032 Documents to import (number) 12 8 5 Time to import (days) 59 37 11 Cost to import (US$ per container) 1581 2,502 1,085 Procedures to export Time (days) Cost (US$) Documents preparation 34 270 Customs clearance and technical control 6 400 Ports and terminal handling 8 501 Inland transportation and handling 2 260 Totals 50 1431 Procedures to import Time (days) Cost (US$) Documents preparation 43 386 Customs clearance and technical control 6 450 Ports and terminal handling 8 495 Inland transportation and handling 2 250 Totals 59 1581 Doing Business 2012 Eritrea 79 TRADING ACROSS BORDERS Documents to export Documents to import Bill of lading Bill of lading Cargo release order Cargo release order Certificate of origin Certificate of origin Commercial Invoice Commercial invoice Customs export declaration Consular invoice Packing List Customs import declaration Pre-shipment inspection clean report of findings Foreign exchange authorisation Technical standard/health certificate Import permit Consular invoice Packing list Foreign exchange authorization Pre-shipment inspection clean report of findings Technical standard/health certificate Terminal handling receipts Doing Business 2012 Eritrea 80 ENFORCING CONTRACTS Well-functioning courts help businesses expand WHAT THE ENFORCING CONTRACTS their network and markets. Without effective INDICATORS MEASURE contract enforcement, people might well do business only with family, friends and others with whom they have established relationships. Where Procedures to enforce a contract through contract enforcement is efficient, firms are more the courts (number) likely to engage with new borrowers or customers, Any interaction between the parties in a and they have greater access to credit. commercial dispute, or between them and the judge or court officer What do the indicators cover? Steps to file and serve the case Doing Business measures the efficiency of the judicial system in resolving a commercial dispute Steps for trial and judgment before local courts. Following the step-by-step Steps to enforce the judgment evolution of a standardized case study, it collects data relating to the time, cost and procedural Time required to complete procedures complexity of resolving a commercial lawsuit. The (calendar days) ranking on the ease of enforcing contracts is the Time to file and serve the case simple average of the percentile rankings on its Time for trial and obtaining judgment component indicators: procedures, time and cost. Time to enforce the judgment The dispute in the case study involves the breach of a sales contract between 2 domestic businesses. Cost required to complete procedures (% of The case study assumes that the court hears an claim) expert on the quality of the goods in dispute. This No bribes distinguishes the case from simple debt Average attorney fees enforcement. To make the data comparable across economies, Doing Business uses several Court costs, including expert fees assumptions about the case: Enforcement costs • The seller and buyer are located in the economy’s largest business city. • The buyer orders custom-made goods, • The dispute on the quality of the goods then fails to pay. requires an expert opinion. • The seller sues the buyer before a • The judge decides in favor of the seller; there competent court. is no appeal. • The value of the claim is 200% of income • The seller enforces the judgment through a per capita. public sale of the buyer’s movable assets. • The seller requests a pretrial attachment to secure the claim. Doing Business 2012 Eritrea 81 ENFORCING CONTRACTS Where does the economy stand today? How efficient is the process of resolving a commercial Globally, Eritrea stands at 47 in the ranking of 183 dispute through the courts in Eritrea? According to economies on the ease of enforcing contracts (figure data collected by Doing Business, enforcing a contract 10.1). The rankings for comparator economies and the requires 39 procedures, takes 405 days and costs regional average ranking provide other useful 22.6% of the value of the claim (see the summary at benchmarks for assessing the efficiency of contract the end of this chapter for details). enforcement in Eritrea. Figure 10.1 How Eritrea and comparator economies rank on the ease of enforcing contracts Source: Doing Business database. Doing Business 2012 Eritrea 82 ENFORCING CONTRACTS What are the changes over time? While the most recent Doing Business data reflect how identify which areas have changed and where the easy (or difficult) it is to enforce a contract in Eritrea potential for improvement is greatest (table 10.1). today, data on the underlying indicators over time help Table 10.1 The ease of enforcing contracts in Eritrea over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 48 47 Time (days) n.a. 405 405 405 405 405 405 405 405 Cost (% of claim) n.a. 22.6 22.6 22.6 22.6 22.6 22.6 22.6 22.6 Procedures (number) n.a. 39 39 39 39 39 39 39 39 Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. Source: Doing Business database. Doing Business 2012 Eritrea 83 ENFORCING CONTRACTS Equally helpful may be the benchmarks provided by for Eritrea on ways to improve the efficiency of the economies that today have the best performance contract enforcement. And changes in regional regionally or globally on the number of steps, time or averages can show where Eritrea is keeping up—and cost required to enforce a contract through the courts where it is falling behind. (figure 10.2). These economies may provide a model Figure 10.2 Has enforcing contracts become easier over time? Procedures (number) Time (days) Doing Business 2012 Eritrea 84 ENFORCING CONTRACTS Cost (% of claim) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. Source: Doing Business database. Doing Business 2012 Eritrea 85 ENFORCING CONTRACTS Economies in all regions have improved contract often work on reducing backlogs by introducing enforcement in recent years. A judiciary can be periodic reviews to clear inactive cases from the docket improved in different ways. Higher-income economies and by making procedures faster. What reforms tend to look for ways to enhance efficiency by making it easier (or more difficult) to enforce contracts introducing new technology. Lower-income economies has Doing Business recorded in Eritrea (table 10.2)? Table 10.2 How has Eritrea made enforcing contracts easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 86 ENFORCING CONTRACTS What are the details? The indicators reported here for Eritrea are based on a codes of civil procedure and other court regulations, as set of specific procedural steps required to resolve a well as through surveys completed by local litigation standardized commercial dispute through the courts lawyers (and, in a quarter of the economies covered by (see the section in this chapter on what the indicators Doing Business, by judges as well). The procedures for cover). These procedures, and the time and cost of resolving a commercial lawsuit, and the associated completing them, are identified through study of the time and cost, are listed in the summary below. Summary of procedures for enforcing a contract in Eritrea—and the time and cost Sub-Saharan Indicator Eritrea OECD high income Africa Time (days) 405 654.80 518.03 Filing and service 40 Trial and judgment 270 Enforcement of judgment 95 Cost (% of claim) 22.6 49.96 19.71 Attorney cost (% of claim) 15 Court cost (% of claim) 3.6 Enforcement Cost (% of claim) 4 Procedures (number) 39 39.02 31.42 Source: Doing Business database. Doing Business 2012 Eritrea 87 RESOLVING INSOLVENCY A robust bankruptcy system functions as a filter, WHAT THE RESOLVING INSOLVENCY ensuring the survival of economically efficient companies and reallocating the resources of INDICATORS MEASURE inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of Time required to recover debt (years) businesses to normal operation and increase Measured in calendar years returns to creditors. By improving the expectations of creditors and debtors about the outcome of Appeals and requests for extension are insolvency proceedings, well-functioning included insolvency systems can facilitate access to finance, Cost required to recover debt (% of debtor’s save more viable businesses and thereby improve estate) growth and sustainability in the economy overall. Measured as percentage of estate value What do the indicators cover? Court fees Doing Business studies the time, cost and outcome Fees of insolvency administrators of insolvency proceedings involving domestic entities. It does not measure insolvency Lawyers’ fees proceedings of individuals and financial Assessors’ and auctioneers’ fees institutions. The data are derived from survey Other related fees responses by local insolvency practitioners and verified through a study of laws and regulations as Recovery rate for creditors (cents on the well as public information on bankruptcy systems. dollar) The ranking on the ease of resolving insolvency is Measures the cents on the dollar recovered based on the recovery rate, which is recorded as by creditors cents on the dollar recouped by creditors through Present value of debt recovered reorganization, liquidation or debt enforcement (foreclosure) proceedings. The recovery rate is a Official costs of the insolvency proceedings are deducted function of time, cost and other factors, such as lending rate and the likelihood of the company Depreciation of furniture is taken into continuing to operate. account To make the data comparable across economies, Outcome for the business (survival or not) Doing Business uses several assumptions about the affects the maximum value that can be business and the case. It assumes that the recovered company: • Is a domestically owned, limited liability company operating a hotel. • Has 201 employees, 1 main secured creditor • Operates in the economy’s largest business and 50 unsecured creditors. city. • Has a higher value as a going concern—and the efficient outcome is either reorganization or sale as a going concern, not piecemeal liquidation. Doing Business 2012 Eritrea 88 RESOLVING INSOLVENCY Where does the economy stand today? Speed, low costs and continuation of viable businesses reorganization, judicial liquidation or debt characterize the top-performing economies. How enforcement procedure (foreclosure)..Globally, Eritrea efficient are insolvency proceedings in Eritrea? stands at 183 in the ranking of 183 economies on the According to data collected by Doing Business, this ease of resolving insolvency (figure 11.1). The rankings economy receives a "no practice" mark for resolving for comparator economies and the regional average insolvency, indicating that in each of the previous 5 ranking provide other useful benchmarks for assessing years there were no cases involving a judicial the efficiency of insolvency proceedings in Eritrea. Figure 11.1 How Eritrea and comparator economies rank on the ease of resolving insolvency Source: Doing Business database. Doing Business 2012 Eritrea 89 RESOLVING INSOLVENCY What are the changes over time? While the most recent Doing Business data reflect the changed—and where it has not (table 11.1). That can efficiency of insolvency proceedings in Eritrea today, help identify where the potential for improvement is data over time show where the efficiency has greatest. Table 11.1 The ease of resolving insolvency in Eritrea over time By Doing Business report year Indicator DB2004 DB2005 DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012 Rank .. .. .. .. .. .. .. 183 183 Time (years) no no no no no no no no n.a. practice practice practice practice practice practice practice practice Cost (% of estate) no no no no no no no no 0 practice practice practice practice practice practice practice practice Recovery rate (cents on n.a. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 the dollar) Note: n.a. = not applicable (the economy was not included in Doing Business for that year). DB2012 rankings reflect changes to the methodology. “No practice� indicates that in each of the previous 5 years the economy had no cases involving a judicial reorganization, judicial liquidation or debt enforcement procedure (foreclosure). This means that creditors are unlikely to recover their money through a formal legal process (in or out of court). The recovery rate for “no practice� economies is 0. Source: Doing Business database. Doing Business 2012 Eritrea 90 RESOLVING INSOLVENCY Equally helpful may be the benchmarks provided by ways to improve the efficiency of insolvency the economies that today have the best performance proceedings. And changes in regional averages can regionally or globally on the time or cost of insolvency show where Eritrea is keeping up—and where it is proceedings or on the recovery rate (figure 11.2). falling behind. These economies may provide a model for Eritrea on Figure 11.2 Has resolving insolvency become easier over time? Time (years) Cost (% of estate) Doing Business 2012 Eritrea 91 RESOLVING INSOLVENCY Recovery rate (cents on the dollar) Note: The economy with the best performance regionally on each indicator, and the economy with the best performance globally, are included as benchmarks. In some cases 2 or more economies share the top regional or global ranking on an indicator. In cases where no data are displayed above for the economy, this indicates that the economy has received a “no practice� mark; see the data notes for details. Source: Doing Business database. Doing Business 2012 Eritrea 92 RESOLVING INSOLVENCY A well-balanced bankruptcy system distinguishes change. Many recent reforms of bankruptcy laws have companies that are financially distressed but been aimed at helping more of the viable businesses economically viable from inefficient companies that survive. What insolvency reforms has Doing Business should be liquidated. But in some insolvency systems recorded in Eritrea (table 11.2)? even viable businesses are liquidated. This is starting to Table 11.2 How has Eritrea made resolving insolvency easier—or not? By Doing Business report year DB Year Reform DB2012 No reform. DB2011 No reform. DB2010 No reform. DB2009 No reform. Note: For information on reforms in earlier years (back to DB2005), see the Doing Business reports for these years, available at http://www.doingbusiness.org. Source: Doing Business database. Doing Business 2012 Eritrea 93 DATA NOTES The indicators presented and analyzed in Doing Business measure business regulation and the ECONOMY CHARACTERISTICS protection of property rights—and their effect on businesses, especially small and medium-size domestic firms. First, the indicators document the complexity of Gross national income (GNI) per capita regulation, such as the number of procedures to start a business or to register and transfer commercial Doing Business 2012 reports 2010 income per capita property. Second, they gauge the time and cost of as published in the World Bank’s World Development achieving a regulatory goal or complying with Indicators 2011. Income is calculated using the Atlas method (current US$). For cost indicators expressed regulation, such as the time and cost to enforce a as a percentage of income per capita, 2010 GNI in contract, go through bankruptcy or trade across U.S. dollars is used as the denominator. Data were borders. Third, they measure the extent of legal not available from the World Bank for Afghanistan; protections of property, for example, the protections Australia; The Bahamas; Bahrain; Brunei Darussalam; of investors against looting by company directors or Canada; Cyprus; Djibouti; the Islamic Republic of the range of assets that can be used as collateral Iran; Kuwait; New Zealand; Oman; Puerto Rico according to secured transactions laws. Fourth, a set of (territory of the United States); Qatar; Saudi Arabia; indicators documents the tax burden on businesses. Suriname; Taiwan, China; the United Arab Emirates; Finally, a set of data covers different aspects of West Bank and Gaza; and the Republic of Yemen. In employment regulation. these cases GDP or GNP per capita data and growth rates from the International Monetary Fund’s World The data for all sets of indicators in Doing Business Economic Outlook database and the Economist 3 2012 are for June 2011. Intelligence Unit were used. Region and income group Methodology Doing Business uses the World Bank regional and income group classifications, available at The Doing Business data are collected in a http://www.worldbank.org/data/countryclass. The standardized way. To start, the Doing Business team, World Bank does not assign regional classifications with academic advisers, designs a questionnaire. The to high-income economies. For the purpose of the questionnaire uses a simple business case to ensure Doing Business report, high-income OECD comparability across economies and over time—with economies are assigned the “regional� classification assumptions about the legal form of the business, its OECD high income. Figures and tables presenting size, its location and the nature of its operations. regional averages include economies from all Questionnaires are administered through more than income groups (low, lower middle, upper middle 9,028 local experts, including lawyers, business and high income). consultants, accountants, freight forwarders, Population government officials and other professionals routinely administering or advising on legal and regulatory Doing Business 2012 reports midyear 2010 population statistics as published in World requirements. These experts have several rounds of Development Indicators 2011. interaction with the Doing Business team, involving conference calls, written correspondence and visits by the team. For Doing Business 2012 team members The Doing Business methodology offers several visited 40 economies to verify data and recruit advantages. It is transparent, using factual information respondents. The data from questionnaires are about what laws and regulations say and allowing subjected to numerous rounds of verification, leading multiple interactions with local respondents to clarify to revisions or expansions of the information collected. potential misinterpretations of questions. Having representative samples of respondents is not an issue; 3 The data for paying taxes refer to January – December 2010. Doing Business 2012 Eritrea 94 Doing Business is not a statistical survey, and the texts entrepreneurs reported in the World Bank Enterprise of the relevant laws and regulations are collected and Surveys or other perception surveys. answers checked for accuracy. The methodology is inexpensive and easily replicable, so data can be collected in a large sample of economies. Because Subnational Doing Business indicators standard assumptions are used in the data collection, This year Doing Business published a subnational study comparisons and benchmarks are valid across for the Philippines and a regional report for Southeast economies. Finally, the data not only highlight the Europe covering 7 economies (Albania, Bosnia and extent of specific regulatory obstacles to business but Herzegovina, Kosovo, the former Yugoslav Republic of also identify their source and point to what might be Macedonia, Moldova, Montenegro and Serbia) and 22 reformed. cities. It also published a city profile for Juba, in the Information on the methodology for each Doing Republic of South Sudan. Business topic can be found on the Doing Business The subnational studies point to differences in website at http://www.doingbusiness.org/methodology/. business regulation and its implementation—as well as in the pace of regulatory reform—across cities in the same economy. For several economies subnational Limits to what is measured studies are now periodically updated to measure The Doing Business methodology has 5 limitations that change over time or to expand geographic coverage should be considered when interpreting the data. First, to additional cities. This year that is the case for the the collected data refer to businesses in the economy’s subnational studies in the Philippines; the regional largest business city and may not be representative of report in Southeast Europe; the ongoing studies in regulation in other parts of the economy. To address Italy, Kenya and the United Arab Emirates; and the this limitation, subnational Doing Business indicators projects implemented jointly with local think tanks in were created (see the section on subnational Doing Indonesia, Mexico and the Russian Federation. Business indicators). Second, the data often focus on a Besides the subnational Doing Business indicators, specific business form—generally a limited liability Doing Business conducted a pilot study this year on company (or its legal equivalent) of a specified size— the second largest city in 3 large economies to assess and may not be representative of the regulation on within-country variations. The study collected data for other businesses, for example, sole proprietorships. Rio de Janeiro in addition to São Paulo in Brazil, for Third, transactions described in a standardized case Beijing in addition to Shanghai in China and for St. scenario refer to a specific set of issues and may not Petersburg in addition to Moscow in Russia. represent the full set of issues a business encounters. Fourth, the measures of time involve an element of judgment by the expert respondents. When sources Changes in what is measured indicate different estimates, the time indicators reported in Doing Business represent the median The methodology for 3 of the Doing Business topics values of several responses given under the was updated this year—getting credit, dealing with assumptions of the standardized case. construction permits and paying taxes. Finally, the methodology assumes that a business has First, for getting credit, the scoring of one of the 10 full information on what is required and does not components of the strength of legal rights index was waste time when completing procedures. In practice, amended to recognize additional protections of completing a procedure may take longer if the secured creditors and borrowers. Previously the business lacks information or is unable to follow up highest score of 1 was assigned if secured creditors promptly. Alternatively, the business may choose to were not subject to an automatic stay or moratorium disregard some burdensome procedures. For both on enforcement procedures when a debtor entered a reasons the time delays reported in Doing Business court-supervised reorganization procedure. Now the 2012 would differ from the recollection of highest score of 1 is also assigned if the law provides secured creditors with grounds for relief from an Doing Business 2012 Eritrea 95 automatic stay or moratorium (for example, if the regulatory environment for local entrepreneurs in each movable property is in danger) or sets a time limit for economy has changed over time. the automatic stay. Ease of doing business Second, because the ease of doing business index now The ease of doing business index ranks economies includes the getting electricity indicators, procedures, from 1 to 183. For each economy the ranking is time and cost related to obtaining an electricity calculated as the simple average of the percentile connection were removed from the dealing with rankings on each of the 10 topics included in the index construction permits indicators. in Doing Business 2012: starting a business, dealing Third, a threshold has been introduced for the total tax with construction permits, registering property, getting rate for the purpose of calculating the ranking on the credit, protecting investors, paying taxes, trading ease of paying taxes. All economies with a total tax across borders, enforcing contracts, resolving rate below the threshold (which will be calculated and insolvency and, new this year, getting electricity. The adjusted on a yearly basis) will now receive the same employing workers indicators are not included in this ranking on the total tax rate indicator. The threshold is year’s aggregate ease of doing business ranking. In not based on any underlying theory. Instead, it is addition to this year’s ranking, Doing Business presents meant to emphasize the purpose of the indicator: to a comparable ranking for the previous year, adjusted highlight economies where the tax burden on business for any changes in methodology as well as additions of 4 is high relative to the tax burden in other economies. economies or topics. Giving the same ranking to all economies whose total Construction of the ease of doing business index tax rate is below the threshold avoids awarding economies in the scoring for having an unusually low Here is one example of how the ease of doing business total tax rate, often for reasons unrelated to index is constructed. In the Republic of Korea it takes 5 government policies toward enterprises. For example, procedures, 7 days and 14.6% of annual income per economies that are very small or that are rich in capita in fees to open a business. There is no minimum natural resources do not need to levy broad-based capital required. On these 4 indicators Korea ranks in th th rd taxes. the 18 , 14 , 53 and 0 percentiles. So on average st Korea ranks in the 21 percentile on the ease of th starting a business. It ranks in the 12 percentile on Data challenges and revisions th getting credit, 25 percentile on paying taxes, 8 th th percentile on enforcing contracts, 7 percentile on Most laws and regulations underlying the Doing resolving insolvency and so on. Higher rankings Business data are available on the Doing Business indicate simpler regulation and stronger protection of website at http://www.doingbusiness.org. All the property rights. The simple average of Korea’s sample questionnaires and the details underlying the st percentile rankings on all topics is 21 . When all indicators are also published on the website. Questions economies are ordered by their average percentile on the methodology and challenges to data can be rankings, Korea stands at 8 in the aggregate ranking submitted through the website’s “Ask a Question� on the ease of doing business. function at http://www.doingbusiness.org. More complex aggregation methods—such as principal components and unobserved components— Ease of doing business and distance to frontier 4 In case of revisions to the methodology or corrections to the underlying data, the data are back-calculated to provide a This year’s report presents results for 2 aggregate comparable time series since the year the relevant economy or topic measures: the aggregate ranking on the ease of doing was first included in the data set. The time series is available on the business and a new measure, the “distance to frontier.� Doing Business website (http://www.doingbusiness.org). The Doing While the ease of doing business ranking compares Business report publishes yearly rankings for the year of publication as well as the previous year to shed light on year-to-year economies with one another at a point in time, the developments. Six topics and more than 50 economies have been distance to frontier measure shows how much the added since the inception of the project. Earlier rankings on the ease of doing business are therefore not comparable. Doing Business 2012 Eritrea 96 yield a ranking nearly identical to the simple average Consider the example of Canada. It stands at 12 in the 5 used by Doing Business. Thus, Doing Business uses aggregate ranking on the ease of doing business. Its the simplest method: weighting all topics equally and, ranking is 3 on both starting a business and resolving within each topic, giving equal weight to each of the insolvency, and 5 on protecting investors. But its 6 topic components. ranking is only 59 on enforcing contracts, 42 on trading across borders and 156 on getting electricity. If an economy has no laws or regulations covering a specific area—for example, insolvency—it receives a Variation in performance across the indicator sets is “no practice� mark. Similarly, an economy receives a not at all unusual. It reflects differences in the degree “no practice� or “not possible� mark if regulation exists of priority that government authorities give to but is never used in practice or if a competing particular areas of business regulation reform and the regulation prohibits such practice. Either way, a “no ability of different government agencies to deliver practice� mark puts the economy at the bottom of the tangible results in their area of responsibility. ranking on the relevant indicator. Economies that improved the most across 3 or more The ease of doing business index is limited in scope. It Doing Business topics in 2010/11 does not account for an economy’s proximity to large Doing Business 2012 uses a simple method to calculate markets, the quality of its infrastructure services (other which economies improved the most in the ease of than services related to trading across borders and doing business. First, it selects the economies that in getting electricity), the strength of its financial system, 2010/11 implemented regulatory reforms making it the security of property from theft and looting, its easier to do business in 3 or more of the 10 topics macroeconomic conditions or the strength of 7 included in this year’s ease of doing business ranking. underlying institutions. Thirty economies meet this criterion: Armenia, Burkina Variability of economies’ rankings across topics Faso, Burundi, Cape Verde, the Central African Republic, Chile, Colombia, the Democratic Republic of Each indicator set measures a different aspect of the Congo, Côte d'Ivoire, The Gambia, Georgia, Korea, business regulatory environment. The rankings of an Latvia, Liberia, FYR Macedonia, Mexico, Moldova, economy can vary, sometimes significantly, across Montenegro, Morocco, Nicaragua, Oman, Peru, Russia, indicator sets. The average correlation coefficient São Tomé and Príncipe, Senegal, Sierra Leone, between the 10 indicator sets included in the Slovenia, the Solomon Islands, South Africa and aggregate ranking is 0.36, and the coefficients Ukraine. Second, Doing Business ranks these between any 2 sets of indicators range from 0.17 economies on the increase in their ranking on the ease (between protecting investors and getting electricity) of doing business from the previous year using to 0.57 (between starting a business and protecting comparable rankings. investors). These correlations suggest that economies rarely score universally well or universally badly on the Selecting the economies that implemented regulatory indicators. reforms in at least 3 topics and improved the most in the aggregate ranking is intended to highlight economies with ongoing, broad-based reform programs. 5 See Simeon Djankov, Darshini Manraj, Caralee McLiesh and Rita Ramalho, “Doing Business Indicators: Why Aggregate, and How to Distance to frontier measure Do It� (World Bank, Washington, DC, 2005). Principal components This year’s report introduces a new measure to and unobserved components methods yield a ranking nearly identical to that from the simple average method because both illustrate how the regulatory environment for local these methods assign roughly equal weights to the topics, since the businesses in each economy has changed over time. pairwise correlations among indicators do not differ much. An The distance to frontier measure illustrates the alternative to the simple average method is to give different weights distance of an economy to the “frontier� and shows to the topics, depending on which are considered of more or less importance in the context of a specific economy. 6 7 A technical note on the different aggregation and weighting Doing Business reforms making it more difficult to do business are methods is available on the Doing Business website subtracted from the total number of those making it easier to do (http://www.doingbusiness.org). business. Doing Business 2012 Eritrea 97 the extent to which the economy has closed this gap The difference between an economy’s distance to over time. The frontier is a score derived from the most frontier score in 2005 and its score in 2011 illustrates efficient practice or highest score achieved on each of the extent to which the economy has closed the gap to the component indicators in 9 Doing Business indicator the frontier over time. sets (excluding the employing workers and getting The maximum (max) and minimum (min) observed electricity indicators) by any economy since 2005. In values are computed for the 174 economies included starting a business, for example, New Zealand has in the Doing Business sample since 2005 and for all achieved the highest performance on the time (1 day), years (from 2005 to 2011). The year 2005 was chosen Canada and New Zealand on the number of as the baseline for the economy sample because it was procedures required (1), Denmark and Slovenia on the the first year in which data were available for the cost (0% of income per capita) and Australia on the majority of economies (a total of 174) and for all 9 paid-in minimum capital requirement (0% of income indicator sets included in the measure. To mitigate the per capita). effects of extreme outliers in the distributions of the Calculating the distance to frontier for each economy rescaled data (very few economies need 694 days to involves 2 main steps. First, individual indicator scores complete the procedures to start a business, but many are normalized to a common unit. To do so, each of need 9 days), the maximum (max) is defined as the 95th the 32 component indicators y is rescaled to (y − percentile of the pooled data for all economies and all min)/(max − min), with the minimum value (min) years for each indicator. representing the frontier—the highest performance on Take Colombia, which has a score of 0.21 on the that indicator across all economies since 2005. Second, distance to frontier measure for 2011. This score for each economy the scores obtained for individual indicates that the economy is 21 percentage points indicators are aggregated through simple averaging away from the frontier constructed from the best into one distance to frontier score. An economy’s performances across all economies and all years. distance to the frontier is indicated on a scale from 0 Colombia was further from the frontier in 2005, with a to 100, where 0 represents the frontier and 100 the score of 0.43. The difference between the scores shows lowest performance. an improvement over time. Doing Business 2012 Eritrea 98 RESOURCES ON THE DOING BUSINESS WEBSITE Current features Doing Business reforms News on the Doing Business project Short summaries of DB2012 business regulation http://www.doingbusiness.org reforms, lists of reforms since DB2008 and a ranking simulation tool Rankings http://www.doingbusiness.org/reforms/ How economies rank—from 1 to 183 http://www.doingbusiness.org/rankings/ Historical data Customized data sets since DB2004 Reports http://www.doingbusiness.org/custom-query/ Access to Doing Business reports as well as subnational and regional reports, reform case Law library studies and customized economy and regional Online collection of business laws and profiles regulations relating to business and gender http://www.doingbusiness.org/reports/ issues http://www.doingbusiness.org/law-library/ Methodology http://wbl.worldbank.org/ The methodologies and research papers underlying Doing Business Contributors http://www.doingbusiness.org/methodology/ More than 9,000 specialists in 183 economies who participate in Doing Business Research http://www.doingbusiness.org/contributors/doing- Abstracts of papers on Doing Business topics business/ and related policy issues http://www.doingbusiness.org/research/ Doing Business 2012 Eritrea 99