Written by Mallika Mahajan and Pawan Kumar Sinha
“The magic mirror on the wall, who is the most beautiful of all?” A white line characterizes countries’ responses when the World Bank (the Bank) issues a Comfortable Business Report (EODB). The authors have previously written that the EODB report’s methodology is more in the legal field than in the de facto field (bit.ly/36V7HEg). But there is no doubt that the EODB report has had a ripple effect worldwide. Governments or their opposition have benefited from a favorable or unfavorable ranking. The goal of policymakers was to design policies that would improve their rankings.
The EODB ranking determined aid flows and investment flows to countries. This, in the words of Holland et al., Stimulated “rank-seeking behavior.” This is exactly the behavior that caused the volatile data in EODB 2018 and EODB 2020.
An independent law firm investigated the circumstances and drivers of data breaches in EODB 2018 and EODB 2020. Preliminary findings from EODB 2018 revealed that China dropped seven places compared to the previous year’s report to 85th place. Various methodologies for improvement were discussed China’s ranking. One method discussed was to include data from Taiwan, China and the Hong Kong Special Administrative Region, China in the China data. By including the Hong Kong Special Administrative Region, China’s position in EODB for 2018 will rise to 70, eight times higher than the previous year. But this idea was rejected for “political reasons”. Another method discussed was to use the highest score of the two cities included in the China data (Beijing and Shanghai) rather than the weighted average as was usually the case for countries whose data in two cities are collected. However, it will increase the ranking of China and other peers. It was finally decided to open the report’s underlying spreadsheets and award higher scores to China for all three indicators to start a business, and legal rights: to get credit and pay taxes. These changes pushed China’s score and position seven places to 78, the same as the country’s EODB rankings for 2017. China’s recruitment worked because the bank was a consumer at the time through a capital raising campaign. The bank will be in “very big trouble” if the campaign does not achieve its goals.
Compensatory Advisory Services Contracts (RAS) have played a central role in the EODB 2020 violations. Requested by member states. RAS projects focus on a variety of topics related to economic development. Some of the RAS projects focus on improving the economic conditions behind the indicators that make up the EODB report. This was clearly a case of conflict of interest. Saudi Arabia has entered into a series of significant RAS contracts with the bank, some of which have focused on issues related to the EODB report. By elevating Saudi Arabia to the top of the list of top developers, the Bank will prove the effectiveness of its efforts and confirm the amount of money that Saudi Arabia has spent on RAS projects. In August 2019, the Doing Business team released a draft of its list of top improvements for EODB 2020 that puts Jordan first in reform with Saudi Arabia second. On September 30, the Doing Business team changed Saudi Arabia’s data to improve the country’s position ahead of Jordan. The legal rights index rose from 3 to 4, which added a mark in terms of debt management. The team also shortened the time required to comply with the new value-added tax.
The bank’s actions, which sparked an independent investigation into data breaches by an outside law firm, are undoubtedly commendable and reassuring. However, the irregularities and ethical issues raised by the investigation undermined the legitimacy of the EODB report. In September 2021, the bank announced its decision to terminate the EODB report. Houndmouth’s lyrics sum up the situation, “You’re gone, but you did not forget, … You turned the script around, twisted the plot … I remember when your neon burned so bright and pink.” The Bank is currently working on a set of indicators to evaluate the business and investment climate in economies around the world leading up to the launch of the new Business Empowerment Environmental Project.
The transition period should not cause fear to close the door on countries willing to invite foreign direct investment and official development aid. Countries can create their own matrices for reform and evaluate their impact. The Department of Industrial Policy and Promotion in India is already conducting such exercises for UT states and territories. It can be expanded to include central government reform programs. Business units in Indian missions abroad, staffed by business / academic experts, can use these matrices to market India to foreign companies. The authors are convinced that India, with its own standards and without the “tyranny” of international rating systems, can emerge as a more attractive destination for foreign companies.
The authors are the chief commissioners of the CBIC and director of the International Anti-Corruption Academy, Austria, respectively.