competitive challenges for cyprus: a view from the doing business report

Competitive Challenges for Cyprus: a view from the Doing Business

Report

Central Bank of CyprusNicosia

January 21, 2013

Augusto Lopez-Claros Director - Global Indicators and Analysis

1

2

What does Doing Business measure?

Doing Business indicators:

Focus on regulations relevant to the life cycle of a small to medium-sized domestic business.

Are built on standardized case scenarios.

Are measured for the most populous city in each country.

Are focused on the formal sector.

DO NOT measure all aspects of the business environment such as macroeconomic stability, corruption, level of labor skills, proximity to markets, or of regulation specific to foreign investment or financial markets.

22

Doing Business indicators – 11 areas of business regulation

3

4

OECD high-income economies combine efficient regulatory practices with strong legal institutions

4

Cyprus has relatively strong legal institutions and less expensive regulatory processes

Stronger legal institutions and less expensive regulatory processes

Stronger legal institutions but more expensive regulatory processes

Weaker legal institutions but less expensive regulatory processesComplexity and cost of regulatory processes

Weaker legal institutions and more expensive regulatory processes

Bubble size reflects population

Str

en

gth

of

leg

al

ins

titu

tio

ns

Greece

France

Hun-gary

Spain

PortugalRomania

Poland

Italy

Czech Republic

BelgiumGermany

UK

Luxembourg

Slovak Republic

Netherlands

SwedenFinland

Denmark

Bulgaria

Austria

LatviaIreland

EstoniaSlovenia

Cyprus

5

11 European Union economies are among the top 30 on the ease of doing business index

1. Singapore

2. Hong Kong SAR, China

3. New Zealand

4. United States

5. Denmark

6. Norway

7. United Kingdom

8. Korea, Rep.

9. Georgia

10. Australia

11. Finland

12. Malaysia

13. Sweden

14. Iceland

15. Ireland

16. Taiwan, China

17. Canada

18. Thailand

19. Mauritius

20. Germany

21. Estonia

22. Saudi Arabia

23. Macedonia, FYR

24. Japan

25. Latvia

26. United Arab Emirates

27. Lithuania

28. Switzerland

29. Austria

30. Portugal

6

Almost all economies are closer to the frontier in regulatory practice today than they were in 2005

Sing

apore

Unite

d States

Ireland

Unite

d King

dom

Denm

ark

Australia

Germ

any

Japa

nKo

rea, Rep

.Estonia

Lithua

nia

Malaysia

South Afric

aLatvia

Taiw

an, C

hina

Portu

gal

Slov

ak Rep

ublic Fiji

Fran

ceHu

ngary

Antig

ua and

Barbu

daBo

tswan

aSt. L

ucia

Peru

Jamaica

Roman

iaTo

nga

Seyche

lles

Dominica

Saud

i Arabia

St. V

incent and

the Gren

adines

Armen

iaGren

ada

Maced

onia, F

YRSt. K

itts an

d Nevis

Vietna

mMaldives

Greece

Leba

non

Trinidad

and

Tob

ago

Nep

alCa

pe Verde

Moroc

coGh

ana

El Salvado

rPa

pua New

Guine

aPa

lau

Solomon

Island

sRu

ssian Fede

ratio

nPh

ilipp

ines

Iran, Is

lamic Rep

.Ecua

dor

Georgia

Urug

uay

Ethiop

iaJordan

Croa

tiaUg

anda

Bosn

ia and

Herzego

vina

Algeria

Tanz

ania

Brazil

Indo

nesia

China

Bhutan

Malaw

iMoz

ambiqu

eZimba

bwe

Microne

sia, Fed

. Sts.

Vene

zuela, RB

Cambo

dia

Egyp

t, Arab

Rep

.Uz

bekistan

Equa

toria

l Guine

aSyria

n Arab

Rep

ublic

Benin

Rwan

daSene

gal

Haiti

Guinea

Mau

ritan

iaAn

gola

Cong

o, Rep

.Afgh

anistan

Cong

o, Dem

. Rep

.Tajik

istan

Eritrea

0

25

50

75

100

2005

2012Russia

7

5 economies from the EU are among the 50 economies narrowing the distance to frontier the most since 2005

8

It was possible to start a business in less than 20 days in only 40 economies, mostly in North America and Northern and Central Europe Only 10 EU economies made it possible for entrepreneurs to start a business in less than 20 days

Now, the time to start a business is less than 20 days for entrepreneurs in 105 economies Now it is possible to start a business in less than 20 days in 19 EU economies

2005

2012*

*Based on samples of 174 economies in 2005 and 185 economies in 2012

Development impact: Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public or private goods. (Quarterly Journal of Economics, February 2002, Djankov, La Porta, Lopez de Silanes, Shleifer.)

Reforms making it easier to start a business were once again most common in 2011/12 – and show results over time in reduced delays…

9

… and big reductions in the cost to start a business around the world

10

OECD high income

European Union

Eastern Europe & Central Asia

South Asia

East Asia & Pacific

Middle East & North Africa

Latin America & Caribbean

Sub-Saharan Africa

4.6

4.6

6.0

21.6

22.9

34.4

35.3

67.6

8.1

9.0

17.5

41.1

51.0

66.7

58.1

233.4

DB2006DB2013

As of 2012, 91 economies have no minimum capital requirement.

Global Average

32.5

Cost of Starting a Business (% of income per capita)

Developing economies around the world have reduced delays for exporting and importing through seaport

11

OECD high income

European Union



East Asia & Pacific


Sub-Saharan Africa

South Asia

11

11

17

20

21

28

31

32

12

14

22

26

24

36

38

36

DB2006 DB2013

Sub-Saharan African economies have reformed 63 times in trading across borders, reducing time to import and export

Development impact: Empirical evidence shows that each addi-tional day that a product is delayed prior to being shipped reduces trade by more than one percent. (Review of Economics and Statis-tics, November 2008, Djankov, Freund and Pham)

Global Average

22

All regions have reduced the time it takes to transfer property between local firms

12

OECD high income

European Union



East Asia & Pacific


Sub-Saharan Africa

South Asia

26

28

28

36

60

62

66

100

59

71

112

49

87

85

104

121

DB2006DB2013

Global Average

Average time to register property (days)

52

Strong convergence across economies since 2005

13

Doing business is easier today than in 2005, particularly in Eastern Europe and Central Asia and Sub-Saharan Africa

14

Cyprus ranks slightly above the EU-27 average on the ease of doing business

MaltaGreece

ItalyRomaniaBulgaria

Czech RepublicLuxembourg

Poland Hungary

Slovak RepublicSpain

Regional averageCyprus

SloveniaFrance

BelgiumNetherlands

PortugalAustria

LithuaniaLatvia

EstoniaGermany

IrelandSwedenFinland

United KingdomDenmark

0 20 40 60 80 100 120

102

7873

72

66

65

56

55

54

46

44

40

36

35

34

33

31

30

29

27

25

21

20

15

13

11

7

5

15

Cyprus ranks higher than the EU-27 average in 6 out of 10 areas of business regulation

Starting a business

Dealing with construction

permits

Getting elec-tricity

Registering property

Getting credit Protecting investors

Paying taxes Trading across borders

Enforcing contracts

Resolving insolvency

37

80

98 99

32 31

18

108

25

EU-27 in DB 13 Cyprus DB 13

Highest 1

Lowest 185

53

7469

7462

54

6862

3647

36

16

88%

47%

38%

46%

61%

68%

OECD high Income Eastern Europe

and Central Asia

Sub-Saharan Africa

Middle East and North Africa

Latin America & the

Caribbean

South Asia

East Asia and Pacific

Pace of reforms remains strong in 2011/12: share of economies with at least one reform making it easier to do business

17

45%

About two-thirds of European union economies carried out reforms improving their business regulations for small and medium sized business in 2011/12

Worldwide, 108 economies implemented 201 reforms in 2011/2012.

17

67%

EU-27

2 EU economies are among the 10 the most-improved economies in 2011/12

Ease ofDoing

Businessrank

Starting a

Business

Dealing with construction

permits

Getting electricity

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across

borders

Enforcing contracts

Resolving insolvency

1 Poland 55 √ √ √ √

2 Sri Lanka 81 √ √ √ √

3 Ukraine 137 √ √ √

4 Uzbekistan 154 √ √ √ √

5 Burundi 159 √ √ √ √

6 Costa Rica 110 √ √ √ √

7 Mongolia 76 √ √ √

8 Greece 78 √ √ √

9 Serbia 86 √ √ √

10 Kazakhstan 49 √ √ √

18

Cyprus reformed in the area of property registration in 2011/12

Cyprus made property transfers faster by computerizing its land registry.

Over the last 10 years, Cyprus has been computerizing the Land Registry. As a result of this computerization, the Registry needs less time to process property transfer applications and issue the new title deed.

DB 2012 DB 20130

5

10

15

20

25

30

35

40

45

42

28

Total time to transfer property in Nicosia

-14 days

19

Cyprus has made progress towards the frontier comparable with other EU economies, despite being tracked by Doing Business only since 2009

20

Poland

Czech Republic

Slovenia

Portugal

FranceLatvia

RomaniaGreece

Bulgaria

Denmark

Slovak Republic

Hungary

Sweden

Netherlands

CyprusSpain

United Kingdom

BelgiumFinland

Lithuania

Italy

AustriaIre

land

Estonia

Germany

0

1

1Who advanced the most in closing the gap to the frontier ?

Nar

row

ing

the

Dis

tanc

e to

the

Fro

ntier

from

200

5 to

201

2*

*Cyprus was included in the sample for the first time in Doing Business 2010, therefore progress shown is between 2009 and 2012.

Thank you. For more information:www.doingbusiness.org

21

Registering Property Nicosia, Cyprus

22

Nicosia6 procedures, 28 days, 9.7% cost to complete property transfers

Standard property transfer details

City Nicosa

Property value EUR 1,098,554.1

No. ProcedureTime to Complete Associated Costs

1Search the property titles and check for encumbrances

1 dayEUR 1.71 is paid for the search of a property title. An additional EUR 7.5 is paid for the search of any encumbrances (i.e. mortgages, memos, etc.) on a specific property

2 Lawyer drafts the sale agreement 2 days EUR 500-1000

3File the contract at the Department of Lands and Surveys

1 day EUR 2

4 Pay transfer Taxes 5 days

Payment of Stamp duty is as follows:• EUR 0 - 170,860 = 0.15%• Above EUR 170,860 = 0.2% plus EUR 150 with a maximum cost for stamp duty of EUR 17,086Payment of Immovable Property Tax is as follows:• EUR 0 - 120,000=0%• EUR 120,001 - 170,000=4%• EUR 170,001 - 300,000=5%• EUR 300,001 - 500,000=6%• EUR 500,001 - 800,000=7%• above EUR 800,000=8%

5 Obtain Sewerage Board Tax clearance 1 day No Cost

6

Declaration of transfer of immovable property at the Land Registry and issuance of the new title deed

5 days

The fees charged by the Department of Lands and Surveys for the transfer of immovable property are as follows:• up tom EUR 85,430 = 3%• EUR 85,430 - 170,860 = 5%• above EUR 170,860 = 8% 23

Cyprus’ areas of improvement in property registration

Indicator CyprusEastern Europe and

Central Asia OECD high income

Procedures (number) 6 6 5

Time (days) 28 30 26

Cost (% of property value) 9.7 2.7 4.5

DB13 Global Average : 55 days | DB13 Cyprus: 28 days

Average Time to Register Property

Good practices Cyprus

Using an electronic database for encumbrances

Offering cadastre information online

Offering expedited procedures

Setting low, fixed transfer fees

3.5 times ECA average

and more than twice

OECD average

24

Cyprus’ performance across three sub-indicators of property registration indicates that there is room for improvement

Cyprus’s areas of improvement in property registration

Uzbekistan

Greece

Cyprus

Eastern Europe and Central Asia

Turkey

Georgia

0 2 4 6 8 10 12 14 16

15

11

6

6

6

1

Number of procedures

Greece

Albania

Cyprus

Turkey


Belarus

0 2 4 6 8 10 12 14

11.8

11.4

9.7

3.3

2.7

0

Cost (% of property value)

Croatia


Cyprus

Greece

Turkey

Georgia

0 20 40 60 80 100 120

104

30

28

18

6

2

Number of days

25

Enforcing Contracts in Cyprus

26

What does it take to enforce a contract in Cyprus?

Note: No reforms have been recorded for Cyprus in Enforcing contracts, as measured by Doing Business.

Indicator CyprusOECD high income

average

Time (days) 735 510

Filing and service 20

Trial and judgment 535

Enforcement of judgment 180

Cost (% of claim) 16.4 20.1

Attorney cost (% of claim) 10.8

Court cost (% of claim) 0.5

Enforcement Cost (% of claim) 5.1

Procedures (number) 43 31

27

28

How does Cyprus compare to other economies?

IndicatorCyprus

Greece

Austria

Belgium

France

Germany

Italy Spain

OECD high income average

Enforcing Contracts (rank)

108 87 7 18 8 5 160 64 36

Time (days) 735 819 397 505 390 394 1,210 510 510

Cost (% of claim) 16.4 14.4 18.0 17.7 17.4 14.4 29.9 17.2 20.1

Procedures (number) 43 39 25 26 29 30 41 40 31

28

Good practices going forward

Introduce specialized commercial courts

Specialized courts tend to improve efficiency. Creating specialized commercial courts can result in faster and less costly contract enforcement, particularly where the commercial caseload is large.

This would especially be helpful in Cyprus, where the trial and judgment period alone makes up 73% of the time it takes to enforce a contract.

Today, 82 of the 185 economies covered by Doing Business (including 16 of 31 OECD high-income economies) have a dedicated stand-alone court, a specialized commercial section within an existing court or specialized judges within a general civil court.

Finalize the implementation of the electronic filing service

Electronic systems in courts, such as electronic filing services, offer multiple benefits. By allowing litigants to file complaints electronically in commercial cases, they can speed up the filing and service process. They can also prevent the loss, destruction or concealment of court records.

29

Dealing with Construction Permits in Cyprus

30

Why does dealing with construction permits matter?

Good construction regulation matters for public safety

Poor quality construction can carry high human costs in terms of injury and death.

Revenue and competitiveness

For many entrepreneurs construction regulations- costs and permitting process- are critical when deciding the location of a start- up. Construction that supports an environment of poor project selection and insufficient maintenance can significantly reduce the economic return to investments.

Efficiency and transparency

The industry is perceived as one of the less transparent: large payments to gain or alter contracts and circumvent regulations are common. The lack of transparency leads to difficulties in the access to information that can make compliance with regulation easier and reduce transaction costs for businesses.

Striking the right balance is the challenge when it comes to construction regulation. Appropriate regulations that ensure safety standards, and that protect the public while making the process efficient and transparent for those who use it.

31

What the indicator measures: procedures, time and cost

Procedures to legally build a warehouse:• Every interaction with an external party (i.e. municipality, inspectors, utilities)• Procedure starts with the first filing of the application or request and is completed when final document or service is

received (construction permits, inspections and utility connections)

Time required to complete each procedure:• Recorded in calendar days• Captures the median duration of each procedure

Cost required to complete each procedure:• Calculated as % of income per capita• Only official fees are counted

32

Dealing with Construction Permits Case study assumptions

The business (BuildCo): Is a limited liability company. Operates in the economy’s largest business city. Is 100% domestically and privately owned. Is fully licensed and insured to carry out construction projects, such as building warehouses. Has at least 1 employee who is a licensed architect and registered with the local association of

architects. Owns the land on which the warehouse is built.

The warehouse: Is located in the peri-urban area of the economy’s largest business city. Is located on a land plot of 929 square meters (10,000 square feet) that is accurately registered in the

cadastre and land registry. Has 2 stories with a total surface of approximately 1,300.6 square meters (14,000 square feet). Each

floor is 3 meters (9 feet, 10 inches) high. Will be connected to water, sewerage and a telephone land line. The connection to each utility network

will be 10 meters long. Will be used for general storage activities, such as storing books. 33

Where is dealing with construction permits easiest? What do they have in common?

Hong Kong SAR, China

Singapore

Georgia

Marshall Islands

St. Vincent and the Grenadines

New Zealand

Bahrain

Denmark

Taiwan, China

Grenada

Global good practices

Risk-based systemsRigorous yet differentiated construction permitting processes to treat buildings according to their risk-level and location.

Building codes; setting rulesA coherent body of rules that defines what is required from builders, and its uniform implementation.

One-stop shopsImprovements on the organization of the review process—by better coordinating the efforts of different agencies.

Electronic platforms or online servicesAllows easier access to information, follow-up and compliance with building formalities in shorter times.

34

What does it take to comply with the formalities to build a warehouse in Cyprus?

Obtaining construction permits and approvals to build a warehouse in Nicosia requires on average 9 procedures, takes 677 days and costs

51.1% of income per capita.

35

What are the procedures, time and cost associated with obtaining a construction permit in Cyprus?

No. ProcedureTime to

completeCost to complete

1 Request copy of the site plan 1 day EUR 2

2 Apply for the town planning permit at the Town Planing Department 180 days EUR 3,333

3 Apply for building permit at the Municipality of Nicosia 180 days EUR 5,202

4 Apply for final approval and final inspection 75 days no charge

5 Receive final inspection 1 day no charge

6 Update land title 240 days EUR 65

7 * Request and obtain telephone connection 10 days EUR 100

8 * Request and obtain Sewerage connection 10 days EUR 74

9 * Request and obtain water connection 10 days EUR 2,444

* Takes place simultaneously with another procedure.Source: Doing Business database.

36

Dealing with construction permits is a very time-consuming process in Cyprus

Indicator Cyprus Eastern Europe & Central Asia average



Time (days) 677 226 143

Cost (% of income per capita) 51.1 486.7 78.7

Cyprus ranks 80th on the ease of dealing with construction permits.

37

38

How does Cyprus compare with other economies today?

Indicator Germany Greece Cyprus Italy Bulgaria Turkey Lebanon

Rank 14 31 80 103 123 142 172

Procedures (number) 9 15 9 11 21 20 19

Time (days) 97 89 677 234 107 180 219

Cost (% of income per capita)

48.1 27.5 51.1 184.2 293.5 164.3 301.8

38

Good practices to implement going forward

39

• Establish & implement time limits It takes on average 6 months to obtain the town planning permit and another 6

months to obtain the building permit. Once the building has been completed, it takes on average another 75 days to obtain

the final inspection and the conformity certificate. By implementing strict time limits for both permits to be processed and for the final

inspection to be carried out, Cyprus can significantly reduce the time required to obtain a construction permit.

• Introduce risk-based classification with fast-track systems Risk-based classification is a system where buildings are classified according to their

size and use and inspections during construction are carried out according to building classification. This allows countries to implement a simpler process to obtain a construction permit for buildings that do not pose a great risk (i.e., smaller buildings, buildings used for basic purposes such as storage, etc.).

For example, Australia implemented a risk-based system and has only 5 steps in the pre-construction phase and only 2 inspections during construction.

Getting Electricity in Cyprus

40

How electricity services matter for businesses ?

World Bank Enterprise Surveysshow that managers in 109economies, 71 of them low orlower middle income, considerelectricity to be among thebiggest constraints to their business.

In addition, managers estimate lossesdue to power outages at an average5.1% of annual sales.

41

42

Getting Electricity indicators – of what use are they to policy makers?

Distribution utilities retain monopolistic positions even in otherwise liberalized markets

Customers are captive Benchmarking utility performance helps regulators

help customers

Great majority of distribution utilities surveyed are only “game in town”

Benchmarking against utilities in other countries needed

Regulatory agencies often have to rely on self-reporting of utilities:

Limits effective monitoring of utility performance (especially in such areas as quality of service regulation)

Independent benchmarking can fill a gap

Time and cost to obtain an electricity connection are negatively correlated with the electrification rate.

The cost to obtain an electricity connection is negatively correlated with the % of transmission and distribution losses

Simpler connection processes are associated with higher firm sales, in particular in industries with high electricity needs

Getting Electricity correlates with other sector challenges….

…and can support regulators in their dialogue with the utility……

42

What Getting Electricity measures: procedures, time and cost

Based on a standardized case study:• Newly built warehouse• Located in the main business city• Modest but non-trivial load of 140 kVA

Data Collection Process: • Contact main distribution utility in the

business capital of each country• Verify with independent professionals, like

electrical contractors, electrical engineers and regulatory agencies.

43

Where is getting electricity easy – and where not?

In economies where getting electricity is most efficient, requiring fewer interactionswith authorities and less time, utilities often carry out the external connection works themselves.

They also obtain the necessary approvals and streamline procedures with other agencies.

Where is it easier to get electricity ?a

a. The rank is the simple average of an economy’s percentile rank on procedures, time and cost to get an electricity connection. See the data notes for details.Source: Doing Business database.

Iceland

Germany

Korea, Rep

Hong Kong, China

Singapore

Taiwan, China

United Arab Emirates

Switzerland

Sweden

Thailand

44

What does it take to connect to electricity in Cyprus?

Obtaining a new electricity connection in Nicosia requires on average 5 procedures, takes 247 days, and costs 86.5% of income per capita.

Cost 86.5% income per capita

45

What are the procedures, time and cost associated with

obtaining an electricity connection in Cyprus?

No. ProcedureTime to

completeCost to complete

1Submit an application for electricity connection to Electric Authority of Cyprus and await an estimate of connection fees

136 days EUR 19,009.3

2 * Await an external inspection by the Electric Authority of Cyprus 30 days No charge

3Await completion of the external connection works, installation of the meter and final connection by the Electric Authority of Cyprus.

84 days No charge

4Await internal wiring and external inspection by the Electricity Authority of Cyprus 26 days no charge

5 Sign a supply contract with the Electric Authority of Cyprus 1 day no charge

* Takes place simultaneously with another procedure.Source: Doing Business database.

46

Getting electricity in Cyprus is a time-consuming process

Indicator Cyprus Eastern Europe & Central Asia average



Time (days) 247 153 98

Cost (% of income per capita) 86.5 627.8 93.0

Cyprus ranks 98th on the ease of getting electricity.

47

How does Cyprus compare with other economies today in getting electricity?

48

Indicator Germany Lebanon Greece Turkey Cyprus Italy Bulgaria

Rank 2 47 59 68 98 107 128

Procedures (number) 3 5 6 5 5 5 6

Time (days) 17 75 62 70 247 155 130

Cost (% of income per capita)

48.3 99.5 62.4 517.9 86.5 319.2 340.7

Potential areas for improvement in Getting Electricity in Cyprus

Streamline the process of obtaining internal approvals for providing the estimate (Procedure 1) Before the utility can provide the customer with the estimate, it submits the estimate for clearance and approval

to several government authorities including: telecom, sewerage, public works, municipality, archeological department and fire brigade. This process can take several months. If better co-ordination could be achieved between these various agencies, the turn-around time for providing the estimate to the customer could be greatly reduced.

Streamline the process of conducting external connection works, meter installation (Procedure 3) It takes nearly three months for the utility to conduct external connection works and meter installation, which

adds to the long wait time before a customer can get their business connected to electricity. The utility should study its internal workflow to increase its efficiency in completing external connection works. In 2011/2012, Italy reduced the time taken for external connection works by re-organizing its departmental workflow and gain efficiencies of time for conducting external connection works.

Ensuring safety of internal wiring by regulating the electrical profession rather than the connection process (Procedure 4)

By regulating the electrical profession and establishing clear liability arrangement for electrical contractors (utility to request certification by the electrical contractor that the internal wiring was done in accordance with the prevailing standards, usually established by the relevant professional bodies). In Iceland the electrician in charge of the internal wiring must be approved by and registered with the consumer agency, which is responsible for the safety of electrical housing installation. The utility refuses applications for new connections if they involve an electrician who is not registered.

49

competitive challenges for cyprus: a view from the doing business report

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