By V. Kostoulas
[email protected]
Finally inaugurating a unified and functional land registry (cadastre), instituting "e-courts" to accelerate the creaky justice system and better access to credit are among the recommendations by the World Bank to improve thrice bailed-out Greece's ranking in the annual "Doing Business" index.
Along those lines, the World Bank Group's regional director for the EU, Arup Banerji, in an interview with "N", details the "pros and cons" of the country's business landscape, months after the last bailout ended in August 2018, as well as which parameters make a country's tax system attractive for investors, businesses and entrepreneurs.
Q. Greece is ranked 79th in the World Bank Doing Business ranking. What are the key factors that keep the country's business environment low?
In the report, countries receive both a ‘score’ and a ‘ranking’. Greece’s ease of doing business ranking shows only how much the regulatory environment has changed. A higher ranking means the regulatory environment in a country is more favourable to starting and running a local firm relative to other countries.
Over the past 5 years, Greece’s global ease of doing business score improved from 66.9 to 68.4. Reforms in several areas such as starting a business, dealing with construction permits, getting electricity, paying taxes and enforcing contracts were key factors behind this improvement.
However, the global Doing Business ranking focuses only on Athens. Athens scores highly for starting a business, trading across borders and on getting electricity. But when it comes to enforcing contracts, registering a property and getting credit, the scores are much lower. Variation in performance across topics is not at all unusual. It reflects how much priority government authorities give to particular areas of business regulation reform and the ability of other agencies to deliver tangible results in their area of concern.
The new sub-national Doing Business analysis shows that Athens doesn’t tell the whole story for Greece. There is significant variation in regulatory performance among Greek cities and much progress is expected in the coming years with the wide-ranging reforms currently underway. For example, Thessaloniki is the first city to have completed the cadaster survey. As a result, the city scores 14.5 out of 30 on the quality of land administration index, compared to only 4.5 points for Athens. So if Athens catches up, Greece’s global Doing Business ranking will also improve.
Could you give some examples that you might have in mind from the daily routine of businesses in Greece?
Greek entrepreneurs face different regulatory hurdles depending on where they set up their businesses. While business regulation is generally set nationwide, it is implementation that can affect performance—with efficiency of public agencies varying substantially across Greece.
For example, trial time for a commercial dispute at local level can be anything from 20 months in Thessaloniki to almost four years in Athens. Developers in Larissa can obtain all necessary approvals to build a warehouse and connect to local utilities in less than 5 months, while their counterparts in Heraklion need to wait almost twice as long. In 2018, customers in Patra experienced three times fewer service interruptions compared to customers in Alexandroupoli.
On the other hand, starting a business in Greece today is easier than elsewhere in European Union, which is impressive. I'm not sure the same goes for the investment licensing process.
Indeed, registering a business in Greece is now easier than anywhere else in the EU. Greece currently ranks 11th globally on this indicator. Several reforms introduced in recent years simplified the process and introduced electronic services. As of last year, entrepreneurs can access business portals and register a business without leaving the office or exchanging any paperwork. This removes a huge burden for those aspiring to run their own business.
In a recent report on Europe's business environment, the World Bank estimates that Greece is able to climb up to 18 places in the international Doing Business. How and in what time horizon?
Actually, the report provides a hypothetical scenario: if Athens had done as well as the best performing Greek city in each area measured by the sub-national Doing Business in the EU 2020 study over the past year, then Greece would have ranked 61st out of 90 economies – 18 positions higher than its actual rank - in the Doing Business 2020 report.
Indeed, many regulatory changes in Athens, comparable to those in other parts of Greece, could help improve Greece's overall ranking. Athens could reduce the time to enforce contracts to 815 days, as in Larissa, and reduce the cost to enforce contracts to 18.1% of the claim value, as in Thessaloniki. Similarly, Athens can make its electricity connection process as efficient as Alexandroupolis' and the power supply as reliable as Patras'. Addressing these areas together could be a game changer.
Are the differences found by the World Bank between key cities in Greece greater than those found in other EU countries?
On some indicators, there isn’t a big gap in performance between the Greek cities we looked at. They all perform almost uniformly on starting a business. But when it comes to registering a property, sub-national differences within Greece are the largest among the 10 EU member states we have measured so far (Bulgaria, Croatia, Czech Republic, Hungary, Ireland, Italy, Portugal, Romania and Slovakia).
Slow administration of justice is seen as a major issue for the competitiveness of the Greek economy, among other things. Where is the problem located and how can it be resolved in the Greek case?
Trial times in Athens are two years longer than in the other five cities benchmarked in Greece. In 2016, Greek courts started operating under new, simplified civil procedure rules which have helped make trials faster. More recently, courts have seen gains from these new procedural rules. But historical backlogs have limited Athens’ ability to reap the benefits of the new procedural rules. Once backlogs are cleared, it is expected that trial time in Athens will be shorter. The country could also employ and optimize electronic tools, such as e-filing and electronic court management, to improve court operation today, with the view of introducing a comprehensive e-court system in the future.
What is the impact of high taxation on the competitiveness of an economy and to what extent does the World Bank index take account of it?
For all governments, effective tax administration is a priority. Paying taxes is one of the most universal and sensitive interactions that citizens can have with their government. So for governments, building a tax system is about balance – how to ensure that the tax system facilitates private sector investment and economic growth, while raising enough revenue to provide needed public goods to its citizens and firms (these public goods – public security, a well-educated workforce, adequate infrastructure and so on -- also affects incentives of firms to invest). So, a well-designed tax system should facilitate competitiveness, be neutral and be easy for taxpayers to comply with. In contrast, poorly structured tax systems can be costly, distort economic decision-making and undermine competitiveness of the economy.
The World Bank’s worldwide Doing Business study investigates and compares just one important aspect of tax regimes across 190 economies worldwide through its Paying Taxes indicator – how simple is it for businesses to pay taxes. There are four key measures used to evaluate the ease of paying taxes for medium-sized domestic businesses: (1) the time businesses spend to file and pay taxes; (2) the number of payments; (3) a post-filing index (how easy it is for businesses to claim a VAT refund and correct a mistake in the corporate income tax return) and (4) the total tax and contribution rate (TTCR).
Greece is a rather characteristic case of the intensity and duration of pathogenesis in its business environment. However, we see similar weaknesses also in the rest of the European South. How do you explain the European South's lagging behind the European North, in terms of economic competitiveness?
Good business and regulation practices can be found both in northern and southern Europe. Several northern European countries are ranked in the top 20 on the ease of doing business, thanks to a long track record of implementing reforms that promote efficiency and transparency. However, there are several southern European countries outperforming northern European countries on these indicators. For example, Spain and Portugal are ranked 30 and 39, respectively, while Netherlands ranks 42nd and Luxembourg 72nd. And, as you know, Greece does very well on some indicators, ranking first among EU member states on the ease of starting a business.
