Doing business in Azerbaijan: easy in theory

Results of the World Bank’s Doing Business 2009 project, claims to present “objective measures of business regulations and their enforcement across 181 economies and selected cities at the sub-national and regional level”, were made public today.

According to the report, Azerbaijan made the biggest progress in reforming business regulations among all surveyed countries and rose from last year’s 96th place to the 33rd in 2008. Azerbaijan came ahead of most CIS countries, excluding Georgia with its 15th rank in the report.

The Bank ranks countries according to the following 10 sets of indicators: starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business. 

Azerbaijan has improved its ranking in all of these indicators, with the exception of closing a business. The biggest positive changes were achieved in protecting investors, registering property, starting a business, and employing workers through several steps such as substantial amendments to the labor code simplifying hiring and dismissal, creation of a second commercial court in Baku, a new unified property registry, and a one-stop shop for company registration.

Local experts do not agree with the overly optimistic results of the report. Just yesterday the Entrepreneurship Development Foundation, a local NGO, presented results of a survey conducted among businessmen in Baku and regions in May-July 2008. According to the survey, that included 41 questions on entrepreneurship, about 52% of small entrepreneurs in Azerbaijan consider it impossible to conduct business without violating laws and regulations. Sabit Bagirov, the chairman of the Foundation, added that the fear of being persecuted led to a quite high non-response rate. 

Another local economic expert, Gubad Ibadoglu, told Radio Liberty that since the World Bank partners mainly with the Government, the ranking resulted from long and intensive negotiations between the Government and the Bank officials.

The Doing Business methodology relies on surveys among “local experts, including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals routinely administering or advising on legal and regulatory requirements”. As noted by a 2008 independent evaluation of the Doing Business project (available here) , the report is based on the assumption that improved regulatory environment leads to the improved firm performance and economic outcomes. It does not capture how the regulations are actually applied, or whether they work in the reality. Among other things, the evaluation recommended to expand the informant base and to make the selection of informants more transparent. 

Beyond a doubt, the report succeeded in influencing policy makers and giving an impulse to a number of policy changes in Azerbaijan, but one must use caution when interpreting its rankings.