Competitive Challenges for Cyprus: a view from the Doing Business Report
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Transcript of Competitive Challenges for Cyprus: a view from the Doing Business Report
Competitive Challenges for Cyprus: a view from the Doing Business
Report
Central Bank of CyprusNicosia
January 21, 2013
Augusto Lopez-Claros Director - Global Indicators and Analysis
1
2
What does Doing Business measure?
Doing Business indicators:
Focus on regulations relevant to the life cycle of a small to medium-sized domestic business.
Are built on standardized case scenarios.
Are measured for the most populous city in each country.
Are focused on the formal sector.
DO NOT measure all aspects of the business environment such as macroeconomic stability, corruption, level of labor skills, proximity to markets, or of regulation specific to foreign investment or financial markets.
22
Doing Business indicators – 11 areas of business regulation
3
4
OECD high-income economies combine efficient regulatory practices with strong legal institutions
4
Cyprus has relatively strong legal institutions and less expensive regulatory processes
Stronger legal institutions and less expensive regulatory processes
Stronger legal institutions but more expensive regulatory processes
Weaker legal institutions but less expensive regulatory processesComplexity and cost of regulatory processes
Weaker legal institutions and more expensive regulatory processes
Bubble size reflects population
Str
en
gth
of
leg
al
ins
titu
tio
ns
Greece
France
Hun-gary
Spain
PortugalRomania
Poland
Italy
Czech Republic
BelgiumGermany
UK
Luxembourg
Slovak Republic
Netherlands
SwedenFinland
Denmark
Bulgaria
Austria
LatviaIreland
EstoniaSlovenia
Cyprus
5
11 European Union economies are among the top 30 on the ease of doing business index
1. Singapore
2. Hong Kong SAR, China
3. New Zealand
4. United States
5. Denmark
6. Norway
7. United Kingdom
8. Korea, Rep.
9. Georgia
10. Australia
11. Finland
12. Malaysia
13. Sweden
14. Iceland
15. Ireland
16. Taiwan, China
17. Canada
18. Thailand
19. Mauritius
20. Germany
21. Estonia
22. Saudi Arabia
23. Macedonia, FYR
24. Japan
25. Latvia
26. United Arab Emirates
27. Lithuania
28. Switzerland
29. Austria
30. Portugal
6
Almost all economies are closer to the frontier in regulatory practice today than they were in 2005
Sing
apore
Unite
d States
Ireland
Unite
d King
dom
Denm
ark
Australia
Germ
any
Japa
nKo
rea, Rep
.Estonia
Lithua
nia
Malaysia
South Afric
aLatvia
Taiw
an, C
hina
Portu
gal
Slov
ak Rep
ublic Fiji
Fran
ceHu
ngary
Antig
ua and
Barbu
daBo
tswan
aSt. L
ucia
Peru
Jamaica
Roman
iaTo
nga
Seyche
lles
Dominica
Saud
i Arabia
St. V
incent and
the Gren
adines
Armen
iaGren
ada
Maced
onia, F
YRSt. K
itts an
d Nevis
Vietna
mMaldives
Greece
Leba
non
Trinidad
and
Tob
ago
Nep
alCa
pe Verde
Moroc
coGh
ana
El Salvado
rPa
pua New
Guine
aPa
lau
Solomon
Island
sRu
ssian Fede
ratio
nPh
ilipp
ines
Iran, Is
lamic Rep
.Ecua
dor
Georgia
Urug
uay
Ethiop
iaJordan
Croa
tiaUg
anda
Bosn
ia and
Herzego
vina
Algeria
Tanz
ania
Brazil
Indo
nesia
China
Bhutan
Malaw
iMoz
ambiqu
eZimba
bwe
Microne
sia, Fed
. Sts.
Vene
zuela, RB
Cambo
dia
Egyp
t, Arab
Rep
.Uz
bekistan
Equa
toria
l Guine
aSyria
n Arab
Rep
ublic
Benin
Rwan
daSene
gal
Haiti
Guinea
Mau
ritan
iaAn
gola
Cong
o, Rep
.Afgh
anistan
Cong
o, Dem
. Rep
.Tajik
istan
Eritrea
0
25
50
75
100
2005
2012Russia
7
5 economies from the EU are among the 50 economies narrowing the distance to frontier the most since 2005
8
It was possible to start a business in less than 20 days in only 40 economies, mostly in North America and Northern and Central Europe Only 10 EU economies made it possible for entrepreneurs to start a business in less than 20 days
Now, the time to start a business is less than 20 days for entrepreneurs in 105 economies Now it is possible to start a business in less than 20 days in 19 EU economies
2005
2012*
*Based on samples of 174 economies in 2005 and 185 economies in 2012
Development impact: Countries that regulate entry more heavily have greater corruption and larger unofficial economies, but not better quality of public or private goods. (Quarterly Journal of Economics, February 2002, Djankov, La Porta, Lopez de Silanes, Shleifer.)
Reforms making it easier to start a business were once again most common in 2011/12 – and show results over time in reduced delays…
9
… and big reductions in the cost to start a business around the world
10
OECD high income
European Union
Eastern Europe & Central Asia
South Asia
East Asia & Pacific
Middle East & North Africa
Latin America & Caribbean
Sub-Saharan Africa
4.6
4.6
6.0
21.6
22.9
34.4
35.3
67.6
8.1
9.0
17.5
41.1
51.0
66.7
58.1
233.4
DB2006DB2013
As of 2012, 91 economies have no minimum capital requirement.
Global Average
32.5
Cost of Starting a Business (% of income per capita)
Developing economies around the world have reduced delays for exporting and importing through seaport
11
OECD high income
European Union
Latin America & Caribbean
Middle East & North Africa
East Asia & Pacific
Eastern Europe & Central Asia
Sub-Saharan Africa
South Asia
11
11
17
20
21
28
31
32
12
14
22
26
24
36
38
36
DB2006 DB2013
Sub-Saharan African economies have reformed 63 times in trading across borders, reducing time to import and export
Development impact: Empirical evidence shows that each addi-tional day that a product is delayed prior to being shipped reduces trade by more than one percent. (Review of Economics and Statis-tics, November 2008, Djankov, Freund and Pham)
Global Average
22
All regions have reduced the time it takes to transfer property between local firms
12
OECD high income
European Union
Eastern Europe & Central Asia
Middle East & North Africa
East Asia & Pacific
Latin America & Caribbean
Sub-Saharan Africa
South Asia
26
28
28
36
60
62
66
100
59
71
112
49
87
85
104
121
DB2006DB2013
Global Average
Average time to register property (days)
52
Strong convergence across economies since 2005
13
Doing business is easier today than in 2005, particularly in Eastern Europe and Central Asia and Sub-Saharan Africa
14
Cyprus ranks slightly above the EU-27 average on the ease of doing business
MaltaGreece
ItalyRomaniaBulgaria
Czech RepublicLuxembourg
Poland Hungary
Slovak RepublicSpain
Regional averageCyprus
SloveniaFrance
BelgiumNetherlands
PortugalAustria
LithuaniaLatvia
EstoniaGermany
IrelandSwedenFinland
United KingdomDenmark
0 20 40 60 80 100 120
102
7873
72
66
65
56
55
54
46
44
40
36
35
34
33
31
30
29
27
25
21
20
15
13
11
7
5
15
Cyprus ranks higher than the EU-27 average in 6 out of 10 areas of business regulation
Starting a business
Dealing with construction
permits
Getting elec-tricity
Registering property
Getting credit Protecting investors
Paying taxes Trading across borders
Enforcing contracts
Resolving insolvency
37
80
98 99
32 31
18
108
25
EU-27 in DB 13 Cyprus DB 13
Highest 1
Lowest 185
53
7469
7462
54
6862
3647
36
16
88%
47%
38%
46%
61%
68%
OECD high Income Eastern Europe
and Central Asia
Sub-Saharan Africa
Middle East and North Africa
Latin America & the
Caribbean
South Asia
East Asia and Pacific
Pace of reforms remains strong in 2011/12: share of economies with at least one reform making it easier to do business
17
45%
About two-thirds of European union economies carried out reforms improving their business regulations for small and medium sized business in 2011/12
Worldwide, 108 economies implemented 201 reforms in 2011/2012.
17
67%
EU-27
2 EU economies are among the 10 the most-improved economies in 2011/12
Ease ofDoing
Businessrank
Starting a
Business
Dealing with construction
permits
Getting electricity
Registering property
Getting credit
Protecting investors
Paying taxes
Trading across
borders
Enforcing contracts
Resolving insolvency
1 Poland 55 √ √ √ √
2 Sri Lanka 81 √ √ √ √
3 Ukraine 137 √ √ √
4 Uzbekistan 154 √ √ √ √
5 Burundi 159 √ √ √ √
6 Costa Rica 110 √ √ √ √
7 Mongolia 76 √ √ √
8 Greece 78 √ √ √
9 Serbia 86 √ √ √
10 Kazakhstan 49 √ √ √
18
Cyprus reformed in the area of property registration in 2011/12
Cyprus made property transfers faster by computerizing its land registry.
Over the last 10 years, Cyprus has been computerizing the Land Registry. As a result of this computerization, the Registry needs less time to process property transfer applications and issue the new title deed.
DB 2012 DB 20130
5
10
15
20
25
30
35
40
45
42
28
Total time to transfer property in Nicosia
-14 days
19
Cyprus has made progress towards the frontier comparable with other EU economies, despite being tracked by Doing Business only since 2009
20
Poland
Czech Republic
Slovenia
Portugal
FranceLatvia
RomaniaGreece
Bulgaria
Denmark
Slovak Republic
Hungary
Sweden
Netherlands
CyprusSpain
United Kingdom
BelgiumFinland
Lithuania
Italy
AustriaIre
land
Estonia
Germany
0
1
1Who advanced the most in closing the gap to the frontier ?
Nar
row
ing
the
Dis
tanc
e to
the
Fro
ntier
from
200
5 to
201
2*
*Cyprus was included in the sample for the first time in Doing Business 2010, therefore progress shown is between 2009 and 2012.
Thank you. For more information:www.doingbusiness.org
21
Registering Property Nicosia, Cyprus
22
Nicosia6 procedures, 28 days, 9.7% cost to complete property transfers
Standard property transfer details
City Nicosa
Property value EUR 1,098,554.1
No. ProcedureTime to Complete Associated Costs
1Search the property titles and check for encumbrances
1 dayEUR 1.71 is paid for the search of a property title. An additional EUR 7.5 is paid for the search of any encumbrances (i.e. mortgages, memos, etc.) on a specific property
2 Lawyer drafts the sale agreement 2 days EUR 500-1000
3File the contract at the Department of Lands and Surveys
1 day EUR 2
4 Pay transfer Taxes 5 days
Payment of Stamp duty is as follows:• EUR 0 - 170,860 = 0.15%• Above EUR 170,860 = 0.2% plus EUR 150 with a maximum cost for stamp duty of EUR 17,086Payment of Immovable Property Tax is as follows:• EUR 0 - 120,000=0%• EUR 120,001 - 170,000=4%• EUR 170,001 - 300,000=5%• EUR 300,001 - 500,000=6%• EUR 500,001 - 800,000=7%• above EUR 800,000=8%
5 Obtain Sewerage Board Tax clearance 1 day No Cost
6
Declaration of transfer of immovable property at the Land Registry and issuance of the new title deed
5 days
The fees charged by the Department of Lands and Surveys for the transfer of immovable property are as follows:• up tom EUR 85,430 = 3%• EUR 85,430 - 170,860 = 5%• above EUR 170,860 = 8% 23
Cyprus’ areas of improvement in property registration
Indicator CyprusEastern Europe and
Central Asia OECD high income
Procedures (number) 6 6 5
Time (days) 28 30 26
Cost (% of property value) 9.7 2.7 4.5
DB13 Global Average : 55 days | DB13 Cyprus: 28 days
Average Time to Register Property
Good practices Cyprus
Using an electronic database for encumbrances
Offering cadastre information online
Offering expedited procedures
Setting low, fixed transfer fees
3.5 times ECA average
and more than twice
OECD average
24
Cyprus’ performance across three sub-indicators of property registration indicates that there is room for improvement
Cyprus’s areas of improvement in property registration
Uzbekistan
Greece
Cyprus
Eastern Europe and Central Asia
Turkey
Georgia
0 2 4 6 8 10 12 14 16
15
11
6
6
6
1
Number of procedures
Greece
Albania
Cyprus
Turkey
Eastern Europe and Central Asia
Belarus
0 2 4 6 8 10 12 14
11.8
11.4
9.7
3.3
2.7
0
Cost (% of property value)
Croatia
Eastern Europe and Central Asia
Cyprus
Greece
Turkey
Georgia
0 20 40 60 80 100 120
104
30
28
18
6
2
Number of days
25
Enforcing Contracts in Cyprus
26
What does it take to enforce a contract in Cyprus?
Note: No reforms have been recorded for Cyprus in Enforcing contracts, as measured by Doing Business.
Indicator CyprusOECD high income
average
Time (days) 735 510
Filing and service 20
Trial and judgment 535
Enforcement of judgment 180
Cost (% of claim) 16.4 20.1
Attorney cost (% of claim) 10.8
Court cost (% of claim) 0.5
Enforcement Cost (% of claim) 5.1
Procedures (number) 43 31
27
28
How does Cyprus compare to other economies?
IndicatorCyprus
Greece
Austria
Belgium
France
Germany
Italy Spain
OECD high income average
Enforcing Contracts (rank)
108 87 7 18 8 5 160 64 36
Time (days) 735 819 397 505 390 394 1,210 510 510
Cost (% of claim) 16.4 14.4 18.0 17.7 17.4 14.4 29.9 17.2 20.1
Procedures (number) 43 39 25 26 29 30 41 40 31
28
Good practices going forward
Introduce specialized commercial courts
Specialized courts tend to improve efficiency. Creating specialized commercial courts can result in faster and less costly contract enforcement, particularly where the commercial caseload is large.
This would especially be helpful in Cyprus, where the trial and judgment period alone makes up 73% of the time it takes to enforce a contract.
Today, 82 of the 185 economies covered by Doing Business (including 16 of 31 OECD high-income economies) have a dedicated stand-alone court, a specialized commercial section within an existing court or specialized judges within a general civil court.
Finalize the implementation of the electronic filing service
Electronic systems in courts, such as electronic filing services, offer multiple benefits. By allowing litigants to file complaints electronically in commercial cases, they can speed up the filing and service process. They can also prevent the loss, destruction or concealment of court records.
29
Dealing with Construction Permits in Cyprus
30
Why does dealing with construction permits matter?
Good construction regulation matters for public safety
Poor quality construction can carry high human costs in terms of injury and death.
Revenue and competitiveness
For many entrepreneurs construction regulations- costs and permitting process- are critical when deciding the location of a start- up. Construction that supports an environment of poor project selection and insufficient maintenance can significantly reduce the economic return to investments.
Efficiency and transparency
The industry is perceived as one of the less transparent: large payments to gain or alter contracts and circumvent regulations are common. The lack of transparency leads to difficulties in the access to information that can make compliance with regulation easier and reduce transaction costs for businesses.
Striking the right balance is the challenge when it comes to construction regulation. Appropriate regulations that ensure safety standards, and that protect the public while making the process efficient and transparent for those who use it.
31
What the indicator measures: procedures, time and cost
Procedures to legally build a warehouse:• Every interaction with an external party (i.e. municipality, inspectors, utilities)• Procedure starts with the first filing of the application or request and is completed when final document or service is
received (construction permits, inspections and utility connections)
Time required to complete each procedure:• Recorded in calendar days• Captures the median duration of each procedure
Cost required to complete each procedure:• Calculated as % of income per capita• Only official fees are counted
32
Dealing with Construction Permits Case study assumptions
The business (BuildCo): Is a limited liability company. Operates in the economy’s largest business city. Is 100% domestically and privately owned. Is fully licensed and insured to carry out construction projects, such as building warehouses. Has at least 1 employee who is a licensed architect and registered with the local association of
architects. Owns the land on which the warehouse is built.
The warehouse: Is located in the peri-urban area of the economy’s largest business city. Is located on a land plot of 929 square meters (10,000 square feet) that is accurately registered in the
cadastre and land registry. Has 2 stories with a total surface of approximately 1,300.6 square meters (14,000 square feet). Each
floor is 3 meters (9 feet, 10 inches) high. Will be connected to water, sewerage and a telephone land line. The connection to each utility network
will be 10 meters long. Will be used for general storage activities, such as storing books. 33
Where is dealing with construction permits easiest? What do they have in common?
Hong Kong SAR, China
Singapore
Georgia
Marshall Islands
St. Vincent and the Grenadines
New Zealand
Bahrain
Denmark
Taiwan, China
Grenada
Global good practices
Risk-based systemsRigorous yet differentiated construction permitting processes to treat buildings according to their risk-level and location.
Building codes; setting rulesA coherent body of rules that defines what is required from builders, and its uniform implementation.
One-stop shopsImprovements on the organization of the review process—by better coordinating the efforts of different agencies.
Electronic platforms or online servicesAllows easier access to information, follow-up and compliance with building formalities in shorter times.
34
What does it take to comply with the formalities to build a warehouse in Cyprus?
Obtaining construction permits and approvals to build a warehouse in Nicosia requires on average 9 procedures, takes 677 days and costs
51.1% of income per capita.
35
What are the procedures, time and cost associated with obtaining a construction permit in Cyprus?
No. ProcedureTime to
completeCost to complete
1 Request copy of the site plan 1 day EUR 2
2 Apply for the town planning permit at the Town Planing Department 180 days EUR 3,333
3 Apply for building permit at the Municipality of Nicosia 180 days EUR 5,202
4 Apply for final approval and final inspection 75 days no charge
5 Receive final inspection 1 day no charge
6 Update land title 240 days EUR 65
7 * Request and obtain telephone connection 10 days EUR 100
8 * Request and obtain Sewerage connection 10 days EUR 74
9 * Request and obtain water connection 10 days EUR 2,444
* Takes place simultaneously with another procedure.Source: Doing Business database.
36
Dealing with construction permits is a very time-consuming process in Cyprus
Indicator Cyprus Eastern Europe & Central Asia average
OECD high income average
Procedures (number) 9 19 14
Time (days) 677 226 143
Cost (% of income per capita) 51.1 486.7 78.7
Cyprus ranks 80th on the ease of dealing with construction permits.
37
38
How does Cyprus compare with other economies today?
Indicator Germany Greece Cyprus Italy Bulgaria Turkey Lebanon
Rank 14 31 80 103 123 142 172
Procedures (number) 9 15 9 11 21 20 19
Time (days) 97 89 677 234 107 180 219
Cost (% of income per capita)
48.1 27.5 51.1 184.2 293.5 164.3 301.8
38
Good practices to implement going forward
39
• Establish & implement time limits It takes on average 6 months to obtain the town planning permit and another 6
months to obtain the building permit. Once the building has been completed, it takes on average another 75 days to obtain
the final inspection and the conformity certificate. By implementing strict time limits for both permits to be processed and for the final
inspection to be carried out, Cyprus can significantly reduce the time required to obtain a construction permit.
• Introduce risk-based classification with fast-track systems Risk-based classification is a system where buildings are classified according to their
size and use and inspections during construction are carried out according to building classification. This allows countries to implement a simpler process to obtain a construction permit for buildings that do not pose a great risk (i.e., smaller buildings, buildings used for basic purposes such as storage, etc.).
For example, Australia implemented a risk-based system and has only 5 steps in the pre-construction phase and only 2 inspections during construction.
Getting Electricity in Cyprus
40
How electricity services matter for businesses ?
World Bank Enterprise Surveysshow that managers in 109economies, 71 of them low orlower middle income, considerelectricity to be among thebiggest constraints to their business.
In addition, managers estimate lossesdue to power outages at an average5.1% of annual sales.
41
42
Getting Electricity indicators – of what use are they to policy makers?
Distribution utilities retain monopolistic positions even in otherwise liberalized markets
Customers are captive Benchmarking utility performance helps regulators
help customers
Great majority of distribution utilities surveyed are only “game in town”
Benchmarking against utilities in other countries needed
Regulatory agencies often have to rely on self-reporting of utilities:
Limits effective monitoring of utility performance (especially in such areas as quality of service regulation)
Independent benchmarking can fill a gap
Time and cost to obtain an electricity connection are negatively correlated with the electrification rate.
The cost to obtain an electricity connection is negatively correlated with the % of transmission and distribution losses
Simpler connection processes are associated with higher firm sales, in particular in industries with high electricity needs
Getting Electricity correlates with other sector challenges….
…and can support regulators in their dialogue with the utility……
42
What Getting Electricity measures: procedures, time and cost
Based on a standardized case study:• Newly built warehouse• Located in the main business city• Modest but non-trivial load of 140 kVA
Data Collection Process: • Contact main distribution utility in the
business capital of each country• Verify with independent professionals, like
electrical contractors, electrical engineers and regulatory agencies.
43
Where is getting electricity easy – and where not?
In economies where getting electricity is most efficient, requiring fewer interactionswith authorities and less time, utilities often carry out the external connection works themselves.
They also obtain the necessary approvals and streamline procedures with other agencies.
Where is it easier to get electricity ?a
a. The rank is the simple average of an economy’s percentile rank on procedures, time and cost to get an electricity connection. See the data notes for details.Source: Doing Business database.
Iceland
Germany
Korea, Rep
Hong Kong, China
Singapore
Taiwan, China
United Arab Emirates
Switzerland
Sweden
Thailand
44
What does it take to connect to electricity in Cyprus?
Obtaining a new electricity connection in Nicosia requires on average 5 procedures, takes 247 days, and costs 86.5% of income per capita.
Cost 86.5% income per capita
45
What are the procedures, time and cost associated with
obtaining an electricity connection in Cyprus?
No. ProcedureTime to
completeCost to complete
1Submit an application for electricity connection to Electric Authority of Cyprus and await an estimate of connection fees
136 days EUR 19,009.3
2 * Await an external inspection by the Electric Authority of Cyprus 30 days No charge
3Await completion of the external connection works, installation of the meter and final connection by the Electric Authority of Cyprus.
84 days No charge
4Await internal wiring and external inspection by the Electricity Authority of Cyprus 26 days no charge
5 Sign a supply contract with the Electric Authority of Cyprus 1 day no charge
* Takes place simultaneously with another procedure.Source: Doing Business database.
46
Getting electricity in Cyprus is a time-consuming process
Indicator Cyprus Eastern Europe & Central Asia average
OECD high income average
Procedures (number) 5 7 5
Time (days) 247 153 98
Cost (% of income per capita) 86.5 627.8 93.0
Cyprus ranks 98th on the ease of getting electricity.
47
How does Cyprus compare with other economies today in getting electricity?
48
Indicator Germany Lebanon Greece Turkey Cyprus Italy Bulgaria
Rank 2 47 59 68 98 107 128
Procedures (number) 3 5 6 5 5 5 6
Time (days) 17 75 62 70 247 155 130
Cost (% of income per capita)
48.3 99.5 62.4 517.9 86.5 319.2 340.7
Potential areas for improvement in Getting Electricity in Cyprus
Streamline the process of obtaining internal approvals for providing the estimate (Procedure 1) Before the utility can provide the customer with the estimate, it submits the estimate for clearance and approval
to several government authorities including: telecom, sewerage, public works, municipality, archeological department and fire brigade. This process can take several months. If better co-ordination could be achieved between these various agencies, the turn-around time for providing the estimate to the customer could be greatly reduced.
Streamline the process of conducting external connection works, meter installation (Procedure 3) It takes nearly three months for the utility to conduct external connection works and meter installation, which
adds to the long wait time before a customer can get their business connected to electricity. The utility should study its internal workflow to increase its efficiency in completing external connection works. In 2011/2012, Italy reduced the time taken for external connection works by re-organizing its departmental workflow and gain efficiencies of time for conducting external connection works.
Ensuring safety of internal wiring by regulating the electrical profession rather than the connection process (Procedure 4)
By regulating the electrical profession and establishing clear liability arrangement for electrical contractors (utility to request certification by the electrical contractor that the internal wiring was done in accordance with the prevailing standards, usually established by the relevant professional bodies). In Iceland the electrician in charge of the internal wiring must be approved by and registered with the consumer agency, which is responsible for the safety of electrical housing installation. The utility refuses applications for new connections if they involve an electrician who is not registered.
49