Doing Business 2018: Modi celebrates, but what about Georgia?

The much-noted flagship publication of the World Bank Doing Business (DB) was publicly unveiled recently. This became cause for celebration for The Indian Prime Minister Narendra Modi. Why? Well, after languishing for some time, India jumped 30 places to reach a rank of 100 (the lower the rank the better in terms of the ease of doing business). It was given the accolade of the 10 ‘top improvers’ for implementing more than 50 regulatory reforms over the past year which ‘make it easier to do business’ – a distinction that India shares with Brunei Darussalam, Thailand, Malawi, Kosovo, Uzbekistan, Zambia, Nigeria, Djibouti and El Salvador. This is not exactly an inspiring list of countries. Nevertheless, the Indian Prime Minister tweeted that it was a ‘historic jump’. This is quite different from last year when the Indian government was disappointed that the World Bank did not adequately capture the reform measures that were underway. Prime Minister Modi’s ambition is to catapult India to the top 50 nations in the DB ranking scheme.

As is well known, the DB Report 2018 is the 15th in a series of annual reports that seek to measure regulations that enhance ‘business activity and those that constrain it’. The theme of this year’s report is ‘Reforming to create jobs’. Its authors claim that there is a significant association between improvements in DB rankings and growth, employment and poverty reduction. I am not going to quibble over this empirical proposition, but I do worry that the cheerleaders of good news emanating from the DB reports do not read the fine print.

As a thoughtful analyst has pointed out, one should take time to understand what exactly is being measured. He points out that ‘in India’s case, the business environment in only Delhi and Mumbai are used to compile the national ranking’. Furthermore, the emphasis is on tracking business regulations that, while welcome, are often disconnected from the daily experiences of millions of Indians.

The DB report is itself rather frank about the narrow nature of its remit. As it says, ‘the focus is deliberately narrow…’  It concedes, for example, that it does not ‘…address the extent to which inadequate roads, rail, ports, and communications may add to a firm’s costs and undermine competitiveness’.

What struck me about DB Report 2018 is the attention given to tiny Georgia which, far more than India, is a glaring example of what is revealed and what is not. Georgia is the only lower-middle income country to be part of the ‘top 20 group’ which is dominated by OECD economies. Furthermore, ‘among the top 20 economies, Georgia, with a ranking of 9, has implemented the highest number of business reforms since the launch of Doing Business in 2003’.

Does this rare distinction make Georgia the envy of the developing world? Certainly, there has been a commendable reduction in poverty. George is also classified as a ‘high human development’ country by the UNDP (with a rank of 70 out of 188 countries). It is a very attractive tourist destination. Yet, there is a lot that one should be worried about. As the Deputy Managing Director of the IMF pointed out in a recent speech, Georgia faces considerable development challenges. The country’s export base is too narrow; unemployment and underemployment remains at high levels, with a preponderance of those in long-term unemployed; almost half of the country’s labour force is employed in agriculture. If ‘reforming to create jobs’ is what Georgia has been doing since 2003, it still has a long way to go.

Perhaps, the biggest development challenge that Georgia is facing is a rapid shrinking of its population with a concomitant decline in the work-force. The last (2014) census revealed that Georgia’s population was 3.7 million whereas it was 4.3 million in 2002. Such a rapid decline in the size of the population has been driven by a variety of factors, with the most proximate ones being unattractive economic conditions, a declining birth rate and rapid emigration. If current trends persist, Georgia’s population will shrink to a little over 1 million by 2050. Georgia might be a star performer in the DB reports, but it faces a fundamental demographic challenge that it is unable to meet.

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