The World Bank Group has launched the first iteration of its renewed annual business climate rankings, which it claims are “more rigorous and more transparent” than the controversial Doing Business report it discontinued in 2021.

The new study, rebranded the Business Ready report and released on October 3, provides information on the business climate in an initial group of 50 economies. The development bank plans to expand the economies it covers to more than 100 next year and to reach about 180 economies by 2026.

Norman Loayza, director of the World Bank’s global indicators group who oversees Business Ready, told fDi that the renewed ranking “replaces and improves upon Doing Business” by having stronger governance, safeguards and transparency, including the publishing of all 1200 comparable indicators for each economy.

The World Bank discontinued its Doing Business report in September 2021 after 18 years. This followed an internal investigation done by law firm WilmerHale, which found irregularities in the 2018 and 2020 reports. It also found that senior World Bank managers pressured staff to alter data affecting the 2018 ranking of China, and the 2020 rankings of Saudi Arabia, the UAE and Azerbaijan.

To overcome this, Mr Loayza said the World Bank has published a guide in the Business Ready methodology and the processes its researchers followed to “protect against undue pressure and against conflicts of interests that may arise”.

The new report collected information on the business and investment climate of 50 economies by surveying a total of 29,000 businesses and more than 2500 experts. Responses were used to create scores in each economy for three pillars: regulatory framework, public services and operational efficiency.

The initial group of 50 economies was selected to ensure coverage of different income levels and geographic regions. The development bank also chose countries where they could easily conduct and implement surveys of businesses, which can be challenging in large economies, such as the US and China, said Mr Loayza.

And the initial 50 country rankings for each of the three pillars show that while richer countries tend to perform better, several developing countries ranked among the top 10 in several categories. The top three countries in the regulatory framework were Hungary, Portugal and Georgia, while the public services pillar was topped by Estonia, Singapore and Croatia. The three leading countries in the operational efficiency pillar were Singapore, Georgia and Rwanda.

“Most economies, especially developing economies, are not business ready,” said Mr Loayza, who explains that this leads to the efficiency with which firms can conduct business in economies to suffer significantly. The development bank also showed that most economies tend to be better at enacting pro-business regulations than providing public services that are needed to secure genuine progress.

Another criticism of the previous Doing Business report was that it was often “gamed”, whereby countries geared their regulatory changes to perform better in the ranking rather than implementing reforms that actually improved their business climate. 

This was evident in Russia’s ranking, which improved from 125th in 2010 to 28th in 2019 after president Vladimir Putin commanded his government in 2012 to improve the ranking by 100 points. However, over that same period, the number of new businesses created in Russia decreased and the number of enterprise failures increased, according to OECD data analysed in an LSE blog.

“Given that [Business Ready] is a much larger and comprehensive exercise, that gaming is nearly impossible, so [countries] will need to do the actual reforms,” Mr Loayza explained. 

Unlike the old report, the renewed ranking surveyed both local and foreign businesses, which shows that in many economies “it’s a lot more difficult for foreign firms,” Mr Loayza continued. “Having a good business environment is not only good for domestic firms, but it’s also the way that international investors will become attracted to participate in the economy. The returns will be higher and the uncertainty around those returns will be lower.”

The Business Ready report found a correlation between a better regulatory framework score and net foreign direct investment (FDI) flows in economies, and an even stronger correlation between public services and FDI. While not a sign of causation, this trend shows improvements in the business climate of countries can help economies to attract future foreign investors.