Doing Business: To kill or not to kill

In early 2018, I was invited to a panel discussion on the cost of doing business alongside representatives of the Kenya Private Sector Alliance (KEPSA) and the Kenya National Chambers of Commerce and Industry (KNCCI).

They went on talking about how the government had improved the country’s ranking on the World Bank’s Doing Business Index.

I explained why it was wrong for them to peg policies on the Doing Business parameters because the index itself was erroneous and misleading. My comments didn’t sit well with them and at some point, we ended up in a back-and-forth argument about how the index works.

A few weeks ago, the World Bank announced that it had indefinitely discontinued the Doing Business Report after an investigation found irregularities in the rankings of some countries.

IMF head Kristalina Georgieva was also fighting for her career, the investigation has found that a section of the World Bank leadership influenced the Doing Business team to manipulate the data while Georgieva was the World Bank CEO. She was lucky that the IMF board decided to retain her despite growing calls for her resignation.

It all started in 2017 when the World Bank’s Doing Business team reviewed the ranking of China from the ranking of 85th to 75th at a time when the bank was seeking the support of China for more capital injection of $1 billion. This raised a lot of curiosity about the transparency and independence of the Doing Business Report. Was this correlation of events causation or not?

Then came 2020, where employers of the World Bank stated that they had spotted data irregularities in the two recent reports. A US law firm was contracted to investigate the problem because the Doing Business Report was now losing public trust and confidence. September 2021, the law firm released its investigation where it found irregularities in Saudi Arabia, the United Arab Emirates, Azerbaijan, India and China.

It also implicated a section of the World Bank leadership in influencing the Doing Business team to manipulate data. Georgieva and her team defended themselves saying that they only double-checked a sensitive number and that China’s ranking did move by a big difference.

But reservations about the Doing Business Report precedes this scandal that started in 2017. Economists had already faulted this index. The major critique, which was what I shared on the panel, was that the index focuses on policies in the formal sector and neglects the informal sector which forms the bulk of the economy in developing countries.

In short, the index is one of the problems that has created and enhanced inequality when it comes to policy interventions, with countries more bothered about improving their score ranking than structurally changing their economies.

Also, the Doing Business index has pushed for one-size-fits-all policies that mainly serve the interest of the multinational corporations (since countries are out to attract foreign investors) over the interest of the local economy.

An example is the ranking on low corporate taxes, which has led countries to fall into a race to the bottom as they outdo each other. It’s for these reasons that I have had reservations about the Doing Business Index, apart from the manipulation of data scandal as analysts discuss whether the index should be killed or reviewed.

Some analysts have called for the index not to be killed because it’s simply a victim of its own success. It became so powerful that countries would do anything to improve their ratings because the World Bank estimated that a one-percentage-point improvement correlates with a $250-500 million additional foreign direct investment.

So, should we kill or simply review the Doing Business ranking? My proposal is that the World Bank, apart from transparency concerns, needs to review the skewness of the index on formal rules, which is doing a great disservice to developing countries.