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Vietnam Stakeholder Roundtable: Starting a Business • Olin McGill and Dang Quang Vinh, Ph.D. • APEC Technical Assistance & Training Facility (TATF) • October 28, 2013 • Ha Noi Workshop Overview: 1. Introductions 2. WB Start a Business scoring 3. Lessons Learned globally in regulatory efficiency reforms 4. Going Beyond Doing Business 5. Conclusion: Setting Priorities 1 1. Introductions: • Purpose – APEC Initiative: – APEC initiative: By 2015, 25% Easier, Faster & Cheaper in Starting a Business, Getting Credit, Enforcing Contracts, Trading Across Borders, Dealing with Construction Permits – Gather information about problems and priorities in SAB • Participants: – Who we are, What we do, Our biggest SAB issue • Doing Business and SAB indicator: – Where Vietnam stands and why it matters 2 Vietnam on DB 2013: 99th of 185 Free X Efficient People Are More Prosperous DB 2012 RANK 1 – 30 31 – 60 61 – 90 91 – 120 121 – 150 151 - 183 Average PC GDP (2011) $36,923 $22,986 $10,484 $5,437 $2,241 $1,950 Vietnam GNI Per Capita: $1,270 – DB 2012 $1,400 – DB 2013 GNI Per Capita Over Time 5 Vietnam’s DB 2013 SAB Performance Starting a Business -- DB 2013 Score Rank / # Tied Procedures 10 146/13 Time (Days) 34 139/2 Cost (% of income per capita) 8.7 76 0 1 (91) Indictor Paid-In minimum capital Overall 99 Vietnam Lags in New Biz Starts Country Income per Capita Cost as % income per capita Cost New Start Rate Vietnam (99) $1,260 8.7% $110 3.0 15.10% $1,271 Malaysia (54) Nominal $8,420 Malaysia Actual 2.5 8.2% $690 Hong Kong (6) $35,160 1.90% $668 19.2 New Zealand (1) $36,648 0.40% $147 17.1 Singapore (4) $42,930 0.60% $258 7.4 7 2. DB Start a Business scoring • The hypothetical new company • Review DB scoring of Vietnam – Is it accurate? – What can we streamline? • Identify SAB priorities 8 The Hypothetical New Business: • Limited liability company (or its legal equivalent). Operates in the economy’s largest business city. • 100% domestically owned and has 5 owners, all people • Start-up capital 10 times income per capita, paid in cash. • Performs general industrial or commercial activities • Leases the commercial plant and offices and is not a proprietor of real estate. • Not qualified for investment incentives or any benefits. • Has 10 to 50 employees 1 month operations start • Has a turnover of at least 100 times income per capita. • Has a company deed 10 pages long. DB Scoring – Part 1 # Procedures Check the proposed company name; obtain business registration certificate 1 and tax registration certificate from the local business registration office under the Dept. of Planning and Investment Days Costs 14 days 200,000 2 Make a company seal 6 days 165,000 370,000 for bronze Registration of the seal sample at the 3 Police Department 1 day 20,000 4 Open a bank account 1 day no charge Publish announcement in a daily 5 newspaper 5 days 700,000 10 DB Scoring – Part 2 # Procedures * 6 Pay business license tax Days 1 day Buy pre-printed VAT invoices from the * 7 Municipal Taxation Department or 10 days obtain self-printed VAT invoices Register with the local labor office to declare use of labor (Municipal *8 1 day Department for Labor, Invalids and Social Affairs). Register employees with the Social * 9 Insurance Fund for the payment of 1 day health insurance and social insurance. Costs 1,000,000 (business license tax) 200,000 per book no charge no charge 11 3. Global Reform Lessons Learned • The Staggering Costs of Inefficiency • Lessons from DB and Georgia: – Ruthless transactional efficiency – Aggressive incrementalism • Efficiency, Investment & Growth • Quantifying Costs of Inefficiency • Efficiency & Transaction Volumes & Values 12 Mongolia Meat Exporters Crippled Agency Purpose Mongolian Taxation Agency To certify meat exporter doesn’t owe taxes - Copy of State Registration Certificate Certificate of Origin - Copy of State Registration Certificate - Copy of Sales Contract - Invoice - Packing list test results - Copy of Certificate of Origin - Copy of State Registration Certificate - Copy of Sales Contract - Application form GASI Conformity Certificate - Copy of State Registration Certificate - Certification of Origin - Test Results - Invoice - Application form NARTAM & Railway Admin. CMR transport documentation - Copy of Sales Contract - Copy of State Registration Certificate customs clearance - Sale of Goods Contract - Copy of State Registration Certificate - Conformity Certificate - CMR - Certification of Origin - Taxation Certificate - Export Certificate MNCCI GASI and the Central Laboratory MCGA Required Documents What can DB and Georgia Teach Us? Small, incremental changes boost Georgia from 112th to 11th in four years 14 Impacts on GDP of Top 10 Trade Times Economy Rank 2010 GDP Days Top (Millions) Export 10 Average Increase Days Top Average Total GDP Import 10 Increase Increase Chile 62 203,443 21 -14 10,538 20 -13 5,554 16,092 Indonesia 39 706,558 17 -10 46,633 27 -20 26,849 73,482 Malaysia 29 237,804 17 -10 26,158 14 -7 12,984 39,143 Mexico 59 1,039,662 12 -5 48,864 20 -13 45,953 94,817 Peru 56 153,845 12 -5 2,538 17 -10 1,639 4,177 Philippines 51 199,589 15 -8 12,135 14 -7 7,125 19,261 PNG 99 9,480 26 -19 251 29 -22 719 970 PRC 60 5,873,629 21 -14 657,846 24 -17 259,614 917,461 160 1,479,819 36 -29 163,076 36 -29 52,412 215,488 Thailand 17 318,847 14 -7 19,195 13 -6 5,165 24,360 Vietnam 68 103,572 22 -15 11,963 21 -14 15,370 27,333 Russia Totals 10,326,248 999,198 433,386 1,432,583 15 New Jobs from Top 10 Trade Times % Unskilled New Jobs Population Economy Working (20%) in Export (Thousands) (15-64) (Thousands) New Jobs in Import Total New Jobs for Unskilled Chile 17,114 69 2,348 52,595 125,148 177,744 Indonesia 239,871 67 32,335 808,375 2,004,770 2,813,145 Malaysia 28,401 65 3,686 328,054 286,402 614,456 Mexico 113,423 65 14,654 293,080 858,759 1,151,839 Peru 29,077 64 3,716 15,921 89,184 105,105 Philippines 93,261 61 11,359 381,662 469,127 850,789 PNG 6,858 58 798 11,001 112,095 123,096 PRC 1,338,300 72 193,786 10,038,115 13,177,448 23,215,563 Russia 141,750 72 20,469 1,127,842 2,433,764 3,561,606 Thailand 69,122 71 9,760 225,456 169,824 395,280 Vietnam 86,937 70 12,241 1,083,329 2,433,511 3,516,839 14,365,430 22,160,032 36,525,462 Totals 16 Calculating Traders’ Opportunity Costs Reductions in time to trade across borders • Import: from 52 days to 13 days = 39 days saved • Export: from 54 days to 10 days = 44 days saved 15% = average annual opportunity cost 0.04% = average daily opportunity cost Savings to traders: • Import: 39 days X 0.04% X $4.4 billion = $68.6 million • Export: 44 days X 0.04% X $1.1 billion = $19.4 million With same capital, trader can do • 6.75 deals a year at 54 days (365/54) • 36.5 deals a year at 10 days (365/10) Ruthless Transactional Efficiency: • Lejava’s First Law: Government should never ask a citizen or business for info it already has. • Corruption is a technical issue: Every interaction between business and government is an opportunity for corruption. Eliminate every interaction we can. Vakhtang Lejava Former Chief Adviser to the Prime Minister Government of Georgia • Simplicity is Power: Streamline and automate everything. (Control and compliance will both increase.) Aggressive Incrementalism: • “A poor transitional country with no capacity to do anything needs poor transitional laws.” • Eliminating agencies with no capacity to do their jobs can’t make things worse • Fix what we can today, every day. Kakha Bendukidze Former State Minister of Reforms Coordination Georgia’s Results - 2006 - 2009 • • • • • • • • • • • GDP increased 65% Tax collections increased 121% FDI increased annually 7 – 20% 50% increase in total trade turnover 67% increase in registered businesses 464% increased in registered individual entrepreneurs 50% increase in construction sector employment, 65% increase in salaries Total deposits grew 34% annually, from $535 million to $2.5 billion (467%) Private credit grew 39 % annually, from $533 million to $3.1 billion (582%) Construction lending grew 43% annually, from $28 million to $195 million (696%) Mortgage lending grew 66% annually, from $72 million to $546 million (758%) Georgia: Efficiency Savings Fuel Growth $744 million Annual Savings to Business and Government Annual Return on USAID’s Four Year Investment -- $57 to $1 Quantifying Costs of Inefficiency • Based on methodology by The Netherlands to quantify administrative burdens on business. • Monetizing Benefits v. Quantifying Costs • Benefits /Costs to business = Costs X Quantity Costs = financial (fees, bribes(?), etc.) + compliance Quantity = number of businesses X frequency per year • Benefits/Costs to government = Administrative Savings Savings = hourly rate of gov’t worker X hours saved Other = rental space, storage space, retrieval time, etc. Georgia Business Registry Archives Unified Business/Tax Registration 1. 92 GEL = average daily net profit of businesses in Georgia * 43,000 business registered annually * 5 days saved by new procedures = 19.78 million GEL 2. 1 day of accountant/lawyer work saved * 45 GEL average daily salary = 1.935 million GEL 3. 22 Tax Department personnel reassigned * 4,500 GEL average annual salary = 99,000 GEL Total annual savings = 21,814,000 GEL or $ 12.4 million. Registrations Nearly Double 80,000 77,778 70,000 60,000 50,000 40,000 40,916 30,000 20,000 10,000 0 Taxpayers registered in Taxpayers registered in September 1, 2004 - August September 1, 2005 - August 31, 2005 31, 2006 Simplified Registration of Individual Taxpayers 1. 11 GEL = average daily salary * 78,000 annual individual registration * 1 day saved by new procedures = 858,000 GEL 2. 5 GEL notary fee eliminated * 78,000 annual individual registrations = 390,000 GEL 3. 0.50 needed to serve each applicant * 78,000 annual applications * 18 GEL average Tax Department employee salary = 88,000 GEL Total annual savings = 1.336 million GEL or $763,500 USD. Registrations Increase 4X 30000 28,077 25000 20000 15000 10000 5000 7,114 0 Natural Persons registered in April, May, June (25 days) of 2006 Natural Persons registered in July, August, September (25 days) of 2006 Mongolia’s SAB Reforms • 220,456,633 – Registration at Tax Office Eliminated* • 473,862,935 – Notary Requirements Reduced* • 54,311,442 – GASR reviews reduced from 3 to 2 • 748,631,010 – Total Savings ($448,282) – 03-09/2013 – 694,319,567 – Total Savings for Business – 54,311,442 – Total Savings for Government Business Savings 12.8 Times Government Savings 4. Going Beyond Doing Business • Why do so many businesses stop, fail, or “disappear”? • Why so many JSCs, and so few oneshareholder LLCs? • What are biggest non-compliance issues? • How to address Business Registry Office resource issues? 29 5. Conclusion Setting Priorities: – Obey Lejava’s First Law? – Empower business start-up professionals? – What else? 30