starting a business olin mcgill and dang quang vinh, ph.d. apec technical assistance & training...
TRANSCRIPT
Starting a Business
• Olin McGill and Dang Quang Vinh, Ph.D.• APEC Technical Assistance & Training Facility (TATF)
• October 28, 2013
• Ha Noi
Vietnam Stakeholder Roundtable:
Workshop Overview:
1. Introductions
2. WB Start a Business scoring
3. Lessons Learned globally in regulatory efficiency reforms
4. Going Beyond Doing Business
5. Conclusion: Setting Priorities
2
1. Introductions:
• Purpose – APEC Initiative:– APEC initiative: By 2015, 25% Easier, Faster & Cheaper in
Starting a Business, Getting Credit, Enforcing Contracts, Trading Across Borders, Dealing with Construction Permits
– Gather information about problems and priorities in SAB
• Participants:– Who we are, What we do, Our biggest SAB issue
• Doing Business and SAB indicator:– Where Vietnam stands and why it matters
3
Vietnam on DB 2013: 99th of 185
DB 2012 RANK Average PC GDP (2011)
1 – 30 $36,923
31 – 60 $22,986
61 – 90 $10,484
91 – 120 $5,437
121 – 150 $2,241
151 - 183 $1,950
Vietnam GNI Per Capita: $1,270 – DB 2012$1,400 – DB 2013
X
GNI Per Capita Over Time
6
Vietnam’s DB 2013 SAB Performance
Starting a Business -- DB 2013
Indictor Score Rank / # Tied
Procedures 10 146/13
Time (Days) 34 139/2
Cost (% of income per capita)
8.7 76
Paid-In minimum capital
0 1 (91)
Overall 99
Vietnam Lags in New Biz Starts
8
CountryIncome
per Capita
Cost as % income per
capitaCost
New Start Rate
Vietnam (99) $1,260 8.7% $110 3.0
Malaysia (54) Nominal $8,420
15.10% $1,2712.5
Malaysia Actual 8.2% $690
Hong Kong (6) $35,160 1.90% $668 19.2
New Zealand (1) $36,648 0.40% $147 17.1
Singapore (4) $42,930 0.60% $258 7.4
2. DB Start a Business scoring
• The hypothetical new company
• Review DB scoring of Vietnam– Is it accurate?– What can we streamline?
• Identify SAB priorities
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The Hypothetical New Business:
• Limited liability company (or its legal equivalent). Operates in the economy’s largest business city.
• 100% domestically owned and has 5 owners, all people• Start-up capital 10 times income per capita, paid in
cash.• Performs general industrial or commercial activities• Leases the commercial plant and offices and is not a
proprietor of real estate.• Not qualified for investment incentives or any benefits.• Has 10 to 50 employees 1 month operations start• Has a turnover of at least 100 times income per capita.• Has a company deed 10 pages long.
DB Scoring – Part 1
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# Procedures Days Costs
1
Check the proposed company name; obtain business registration certificate and tax registration certificate from the local business registration office under the Dept. of Planning and Investment
14 days 200,000
2 Make a company seal 6 days165,000 370,000 for bronze
3Registration of the seal sample at the Police Department
1 day 20,000
4 Open a bank account 1 day no charge
5Publish announcement in a daily newspaper
5 days 700,000
DB Scoring – Part 2
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# Procedures Days Costs
* 6 Pay business license tax 1 day1,000,000 (business license tax)
* 7Buy pre-printed VAT invoices from the Municipal Taxation Department or obtain self-printed VAT invoices
10 days200,000 per book
* 8
Register with the local labor office to declare use of labor (Municipal Department for Labor, Invalids and Social Affairs).
1 day no charge
* 9Register employees with the Social Insurance Fund for the payment of health insurance and social insurance.
1 day no charge
* 10
Register for trade union with Vietnam General Confederation of Labour
7 days no charge
3. Global Reform Lessons Learned
• The Staggering Costs of Inefficiency
• Lessons from DB and Georgia:– Ruthless transactional efficiency– Aggressive incrementalism
• Efficiency, Investment & Growth
• Quantifying Costs of Inefficiency
• Efficiency & Transaction Volumes & Values
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Mongolia Meat Exporters CrippledAgency Purpose Required Documents
Mongolian Taxation Agency To certify meat exporter doesn’t owe taxes - Copy of State Registration Certificate
MNCCI Certificate of Origin
- Copy of State Registration Certificate- Copy of Sales Contract- Invoice- Packing list
GASI and the Central Laboratory
test results
- Copy of Certificate of Origin - Copy of State Registration Certificate- Copy of Sales Contract- Application form
GASI Conformity Certificate
- Copy of State Registration Certificate- Certification of Origin- Test Results- Invoice - Application form
NARTAM & Railway Admin. CMR transport documentation- Copy of Sales Contract- Copy of State Registration Certificate
MCGA customs clearance
- Sale of Goods Contract- Copy of State Registration Certificate- Conformity Certificate- CMR- Certification of Origin - Taxation Certificate- Export Certificate
What can DB and Georgia Teach Us?
15Small, incremental changes boost Georgia from 112th to 11th in four years
Impacts on GDP of Top 10 Trade Times
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Economy Rank2010 GDP (Millions)
Days Export
Top 10
Average Increase
Days Import
Top 10
Average Increase
Total GDP
Increase
Chile 62 203,443 21 -14 10,538 20 -13 5,554 16,092
Indonesia 39 706,558 17 -10 46,633 27 -20 26,849 73,482
Malaysia 29 237,804 17 -10 26,158 14 -7 12,984 39,143
Mexico 59 1,039,662 12 -5 48,864 20 -13 45,953 94,817
Peru 56 153,845 12 -5 2,538 17 -10 1,639 4,177
Philippines 51 199,589 15 -8 12,135 14 -7 7,125 19,261
PNG 99 9,480 26 -19 251 29 -22 719 970
PRC 60 5,873,629 21 -14 657,846 24 -17 259,614 917,461
Russia 160 1,479,819 36 -29 163,076 36 -29 52,412 215,488
Thailand 17 318,847 14 -7 19,195 13 -6 5,165 24,360
Vietnam 68 103,572 22 -15 11,963 21 -14 15,370 27,333
Totals 10,326,248 999,198 433,386 1,432,583
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EconomyPopulation
(Thousands)
% Working (15-64)
Unskilled (20%)
(Thousands)
New Jobs in Export
New Jobs in Import
Total New Jobs for Unskilled
Chile 17,114 69 2,348 52,595 125,148 177,744
Indonesia 239,871 67 32,335 808,375 2,004,770 2,813,145
Malaysia 28,401 65 3,686 328,054 286,402 614,456
Mexico 113,423 65 14,654 293,080 858,759 1,151,839
Peru 29,077 64 3,716 15,921 89,184 105,105
Philippines 93,261 61 11,359 381,662 469,127 850,789
PNG 6,858 58 798 11,001 112,095 123,096
PRC 1,338,300 72 193,786 10,038,115 13,177,448 23,215,563
Russia 141,750 72 20,469 1,127,842 2,433,764 3,561,606
Thailand 69,122 71 9,760 225,456 169,824 395,280
Vietnam 86,937 70 12,241 1,083,329 2,433,511 3,516,839
Totals 14,365,430 22,160,032 36,525,462
New Jobs from Top 10 Trade Times
Calculating Traders’ Opportunity Costs
Reductions in time to trade across borders
• Import: from 52 days to 13 days = 39 days saved
• Export: from 54 days to 10 days = 44 days saved
15% = average annual opportunity cost
0.04% = average daily opportunity cost
Savings to traders:
• Import: 39 days X 0.04% X $4.4 billion = $68.6 million
• Export: 44 days X 0.04% X $1.1 billion = $19.4 million
With same capital, trader can do
• 6.75 deals a year at 54 days (365/54)
• 36.5 deals a year at 10 days (365/10)
• Lejava’s First Law: Government should never ask a citizen or business for info it already has.
• Corruption is a technical issue: Every interaction between business and government is an opportunity for corruption. Eliminate every interaction we can.
• Simplicity is Power: Streamline and automate everything. (Control and compliance will both increase.)
Vakhtang LejavaFormer Chief Adviser to the Prime MinisterGovernment of Georgia
Ruthless Transactional Efficiency:
Aggressive Incrementalism:
• “A poor transitional country with no capacity to do anything needs poor transitional laws.”
• Eliminating agencies with no capacity to do their jobs can’t make things worse
• Fix what we can today, every day. Kakha Bendukidze
Former State Minister of Reforms Coordination
Georgia’s Results - 2006 - 2009
• GDP increased 65%• Tax collections increased 121%• FDI increased annually 7 – 20%• 50% increase in total trade turnover• 67% increase in registered businesses• 464% increased in registered individual entrepreneurs• 50% increase in construction sector employment, 65%
increase in salaries• Total deposits grew 34% annually, from $535 million to $2.5
billion (467%)• Private credit grew 39 % annually, from $533 million to $3.1
billion (582%)• Construction lending grew 43% annually, from $28 million to
$195 million (696%)• Mortgage lending grew 66% annually, from $72 million to
$546 million (758%)
Georgia: Efficiency Savings Fuel Growth
$744 million
Annual Savings
to Business and
Government
Annual Return
on USAID’s
Four Year
Investment
-- $57 to $1
• Based on methodology by The Netherlands to quantify administrative burdens on business.
• Monetizing Benefits v. Quantifying Costs
• Benefits /Costs to business = Costs X Quantity
Costs = financial (fees, bribes(?), etc.) + compliance Quantity = number of businesses X frequency per year
• Benefits/Costs to government = Administrative Savings
Savings = hourly rate of gov’t worker X hours saved
Other = rental space, storage space, retrieval time, etc.
Quantifying Costs of Inefficiency
Georgia Business Registry Archives
Unified Business/Tax Registration
1. 92 GEL = average daily net profit of businesses in Georgia * 43,000 business registered annually * 5 days saved by new procedures = 19.78 million GEL
2. 1 day of accountant/lawyer work saved * 45 GEL average daily salary = 1.935 million GEL
3. 22 Tax Department personnel reassigned * 4,500 GEL average annual salary = 99,000 GEL
Total annual savings = 21,814,000 GEL or $ 12.4 million.
Registrations Nearly Double
40,916
77,778
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Taxpayers registered inSeptember 1, 2004 - August
31, 2005
Taxpayers registered inSeptember 1, 2005 - August
31, 2006
Simplified Registration of Individual Taxpayers
1. 11 GEL = average daily salary * 78,000 annual individual registration * 1 day saved by new procedures = 858,000 GEL
2. 5 GEL notary fee eliminated * 78,000 annual individual registrations = 390,000 GEL
3. 0.50 needed to serve each applicant * 78,000 annual applications * 18 GEL average Tax Department employee salary = 88,000 GEL
Total annual savings = 1.336 million GEL or $763,500 USD.
Registrations Increase 4X
7,114
28,077
0
5000
10000
15000
20000
25000
30000
Natural Persons registered in April, May, June (25 days) of 2006
Natural Persons registered in July, August, September (25 days) of 2006
Mongolia’s SAB Reforms
• 220,456,633 – Registration at Tax Office Eliminated*
• 473,862,935 – Notary Requirements Reduced*
• 54,311,442 – GASR reviews reduced from 3 to 2
• 748,631,010 – Total Savings ($448,282) – 03-09/2013– 694,319,567 – Total Savings for Business– 54,311,442 – Total Savings for Government
Business Savings 12.8 Times Government Savings
4. Going Beyond Doing Business
• Why do so many businesses stop, fail, or “disappear”?
• Why so many JSCs, and so few one-shareholder LLCs?
• What are biggest non-compliance issues?
• How to address Business Registry Office resource issues?
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5. Conclusion
Setting Priorities:– Obey Lejava’s First Law?– Empower business start-up professionals?– What else?
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