Czech Republic seeks to climb prestigious business ranking

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The annual Doing Business report published by the World Bank is a prestigious overview of which countries appear to be getting it right economically and why. Much of the focus is on the hurdles that ordinary business men and women have to go through to start and continue doing business in specific countries. But there was some confusion this year as regards the Czech Republic with some reports about the overall outcome saying it had improved and others saying it had fallen back.

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To some extent, both versions of improvement and regression were correct. According to the World Bank’s absolute rankings of the 190 countries evaluated this year, the Czech Republic climbed nine places to 27th place from its position in 2016. But between the years the banks own methodology has been changed and in a like for like comparison, using the latest methodology for 2016, would see the country dropping a place to final resting place of 27th in the world.

The latest ranking does see the Czech Republic now doing better than Slovakia, down in 33rd place on the ladder, but is behind Poland, in 24th place, but ahead of some more developed European countries, such as France, Italy, and Switzerland. The top places are occupied by the likes of New Zealand, Singapore, Denmark, Hong Kong, South Korea, Norway, and Britain The World Bank’s Rita Ramalho, who is in overall charge of the Doing Business survey, was in Prague last week and explains the circumstances of how the latest ranking was arrived at:

“In absolute terms there is clearly an improvement. Then when we look at the ranking because it depends on other countries too, there was a decrease of one point in comparable methodology, when it is compared to what we published last year it was actually a high increase but that was mainly because we expanded the methodology and the new areas where we are measuring the Czech Republic does quite well.”

“In absolute terms there is clearly an improvement.”

The ranking is based on a points score based on various categories which comprise the ease of registering property, getting credit, protecting minority investors, enforcing contracts, dealing with insolvency, and trading across borders. The overall points score for the Czech Republic advanced slightly from 76.43 point out of a 100 in 2016 to 76.71 for the 2017 report. That progress was thanks largely to changes in how the evaluation is put together and to specific improvements in some sectors. Rita Ramalho again:

“So there were a few things that happened, there was an improvement in the process of starting a business, to set up a company. Now, it’s easier than before, there is one less procedure. Also in the process of getting an electricity connection there was also reduced time. There is another thing that affected the overall ranking and that is that we expanded the methodology, in particular in paying taxes. We are measuring a new area – the post filing area which is what happens after you pay taxes. So if you want to get a VAT refund, if you get audited for corporate income tax, the Czech Republic actually does quite well. So that also helped up boosting up the overall ranking and the overall score.”

Rita Ramalho, photo: archive of World Bank
To add in a bit more detail, the Czech Republic actually ranked in first place worldwide as regards trading across borders. But it was a shared first place with many other EU countries, such as Denmark, which also benefit from the single market trade rules, and have good motorways and access to neighbouring markets also getting a top score in this category. There is however a very significant Achilles heel for the country and that is focused on the construction sector. Rita Ramalho:

“The Czech Republic is already in a very good position but the area where it stands out as being worst compared to its peers is in dealing with construction permits which is still a very complicated process. There is a need to streamline. We measured two aspects: the efficiency and the quality. The efficiency is the steps, time, and cost to get all you need for a building permit. The quality is about whether the checks are in place to make sure the building is well built. On the quality, the Czech Republic does quite well, so there is no problem on the quality of the buildings. It’s that the process to get everything done, all the formalities, is just very complex.”

The Czech Republic is ranked 130th in the world for its regime on construction permits, actually falling four places from its 2016 position although its points score did improve slightly. The World Bank assessed how long it takes to get the permits to build a relatively simple building - a warehouse – and for the Czech Republic it was estimated to take 247 days to go through the 21 procedures involved. Compare that to Poland where it takes 153 days to fulfil the 12 procedures or in Germany where it takes 96 days to go through the eight procedures.

“On the quality, the Czech Republic does quite well, so there is no problem on the quality of the buildings.”

She is upbeat that the Czech Republic can follow the example of other countries in the region and improve its act here. And an improvement here would be fairly fundamental given that construction is a large part of every economy and new businesses coming into a country often want to build rather than take over existing facilities.

“I think it is possible to change this because the system that exists here is very similar to the system that used to exist in many countries of the region. It’s not that it is rare, it’s just that over time they have evolved and streamlined the process. The Czech Republic – and in particular Prague, because this is measured regarding Prague, hasn’t yet done that. Other countries, like Poland, used to have a very complex and permit system and now it’s much simpler. I think it can be done. Where they are in that process, I don’t know, that’s a question for the government.”

Many in the Czech construction sector complain they are still mired in too much paperwork and procedures and say the prospects do not look particularly encouraging.

Photo: Filip Jandourek
To shift the focus a bit on what the general prospects for the Czech Republic are, the World Bank is already compiling data on another area for its evaluation and that involves doing business with the government and all the many public agencies and institutions. It will cover such issues as how easy it is to qualify for a government or public tender and what the appeals procedures are and such like. Given the Czech Republic’s fraught and problematic experience of holding public tenders that may not bode so well for future rankings. The World Bank is likely to decide whether to make this aspect part of the overall evaluation at the start of 2017 and it could then become factored in for the 2018 report.

Another speaker at the recent Prague presentation was deputy minister of finance Alena Schillerová. She holds out the prospect of some substantial improvements in the country’s tax performance. This would be based on further improvements as regards falling in tax forms and also the development of a sort of single stop tax point at financial offices in the future. Instead of pestering citizens for lots of data which public authorities already have, the tax offices would be able to easily access it and share it. Many of those changes will depend a long needed update of the ministry’s 20 year old Information Technology. Another factor will be political will, the tax overhaul is now being prepared but will not be put into effect before parliamentary elections due to take place in 2017.

“Other countries, like Poland, used to have a very complex and permit system and now it’s much simpler.”

A final point, the World Bank report presents a picture of doing business in the Czech Republic although the actual focus for all its data is the capital city, Prague. Given the fact that there can be differences in regional planning rules or different regional distribution companies can have different rules for getting plugged into the electricity network, this is not totally representative of the state of play in the whole country. The World Bank is therefore coming up with follow up reports on conditions in six other Czech cities: Ústí, Plzeň, Brno, Liberec, Ostrava, and Olomouc.