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In part 1 we were looking at the government’s playing field in savings: taxes, social programs, a decent public finance management, and their direct impact on the business friendliness of a country. But now we talk about measuring the Ease of Doing Business in a country – with respect to the well reputated and known Doing Business Index of the World Bank.

Of course there are other ways too – such as development indexes by other organizations – but from our point of view the fact that this index is simple public, easy to understand, and has appropriate criteria argue for it. Although it aims at domestic investments and starting businesses, it also seems to be valid for foreign investments or the expansion of domestic enterprises.

Let the World Bank explain what it is about:

The Doing Business Project provides objective measures of business regulations and their enforcement across 189 economies and selected cities at the subnational and regional level. The Doing Business Project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages countries to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each country. In addition, Doing Business offers detailed subnational reports, which exhaustively cover business regulation and reform in different cities and regions within a nation. These reports provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas. Selected cities can compare their business regulations with other cities in the country or region and with the 189 economies that Doing Business has ranked.                             

(Read more: www.doingbusiness.org/about-us)

Another important criterion that needs to be factored in is transparency – in particular the corruption index of Transparency International. Because Doing Business excludes the whole issue of bribery, the two indices cannot be easily statistically connected.

(Read more: www.doingbusiness.org/methodology and http://cpi.transparency.org/cpi2013/in_detail/).

The question of the influence of corruption on an economy’s competitiveness (and whether it is a business-friendly environment) is not always as simple as you would assume. Although a statistical correlation does exist (see the calculations in Herciu, M: “The Impact of corruption in national competitiveness,” Abbas J. Ali, (2011) “Corruption and competitiveness,” Competitiveness Review, Vol. 21 Iss 4) there are also some instances where this doesn’t seem to be the case – for example, in China (see F. Allen/J. Qijan, “Corruption and Competition,” www2.bc.edu/~qianju/Corruption-801-2007.pdf).

Since the majority of opinions speak for a positive correlation, we recommend keeping the corruption level in mind when talking about the attractiveness of an economy. Corruption is like doping – it is not the best athlete who wins – but for sustainable growth you need to make sure that the strongest win and not the ones that bribe most. The latter scenario supports an optimal resource allocation only by chance.

The assumption is the lower the corruption level, the better the environment. One of the best-known indicators is the Corruption Perceptions Index of Transparency International.

Transparency International is an organization with the mission to stop corruption and promote transparency, accountability and integrity at all levels and across all sectors of society. Its Core Values are: transparency, accountability, integrity, solidarity, courage, justice and democracy.

In order to achieve their mission they established the Corruption Perceptions Index (CPI). It ranks countries and territories based on how corrupt their public sector is perceived to be. It is a composite index – a combination of polls – drawing on corruption-related data collected by a variety of reputable institutions. The CPI reflects the views of observers from around the world, including experts living and working in the countries and territories evaluated.  

(Read more: www.transparency.org/)

The Intro to the sequence of blogs was: What can SAP do to help countries in becoming more attractive to investors. We now decided that we should use well known indicators as measure. Consequently we need to do some research in those criteria and then check what SAP can do to improve the ranking of the (sub-) criteria for the country.

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