Why is Narendra Modi called a feku

How the World Bank Business Index was tricked

Vienna / Washington - Russia, Azerbaijan, Kenya and Uzbekistan saw a steep upward trend. The countries improved their ranking in the World Bank's Doing Business Report by up to 80 places within five years. India catapulted itself from 132nd to 63rd, and this year, to the delight of Prime Minister Narendra Modi, the subcontinent should even manage to make it into the top 50. Provided that the list for foreign direct investment now holds as the relevant qualified list and there is a new report in October.

That is more than questionable. The World Bank is reopening the last five reports after having to admit irregularities in the creation of its globally recognized Global Business Climate Index over the weekend. There were a number of irregularities in the 2018 and 2020 reports, according to a statement by the multilateral organization and development bank.

Thorough review

A systematic review is needed in the reports of the past five years. There is nothing less in question than the seriousness of the data. Until then, there will be no new edition of the index, which was first created in 2002 and provides information about the economic resources, bureaucracy and competitiveness of 190 countries, according to the Financial Times (FT).

It is quite possible that data will (have to) be revised retrospectively. The leaps from Saudi Arabia, China and Azerbaijan were particularly noticeable recently. The Saudi Kingdom had catapulted itself from 92nd place to 62nd place, although doubts and criticism were expressed that the regulatory framework for setting up a company, for example, had actually improved so significantly.

China before France

China, in turn, miraculously overtook France, although according to the 2015 index it was still quite time-consuming and complicated to do business in China - about as complicated as in Namibia or Paraguay, which played in a league similar to that of the People's Republic: Pronounced, slow bureaucracy, unclear responsibilities, very complicated procedures that could hardly be mastered without Chinese partner companies. Beijing sharply rejected criticism of its rise from 46th to 31st place, qualifying it as Western propaganda.

It was not the first time that observers and business leaders shook their heads at the rankings compiled by the World Bank. Paul Romer, former chief economist of the World Bank, suspected two years ago that the index was susceptible to manipulation. Chile's ranking may have deteriorated from 34th place (in 2014) to 55th place in 2018 because World Bank employees may have had ideological reservations about the socialist government of President Michelle Bachelet.

New rules, new winners

In addition, the methodology for calculating the index has been changed several times. These changes would have given some countries an advantage in the ranking, while the same countries hardly improved on the basic parameters. India, which catapulted its way up from 130 to 100th place in the 2018 report, could have benefited from such changes. Even then, researchers criticized that this massive improvement was largely due to changes in methodological standards.

The focus on investors seduces countries to tax cuts or relaxation of regulation, although the opposite is indicated in macroeconomic terms, quoted the FT former chairman of the United Nations Economic Commission for Africa, Carlos Lopes, who teaches bread-and-butter at the University of Cape Town. Governments are in a race for direct investment, although investors value stability and legal certainty much higher.

Corruption is not measured

That in turn could fuel corruption, which, by the way, is not reflected in the World Bank index. Rapid building permits are such a gateway. In Sudan, for example, the law provides for a building permit to be granted for 270 days, but companies can obtain it after five days. That brings a lot of good points in the Doing Business Index. (Luise Ungerboeck, August 31, 2020)