How the Rankings Are Tied to Reality

The latest Doing Business report has shown a serious progress made by Kazakhstan in creating a positive business-environment. The limitations are dwindling while the opportunities are growing. But does it have anything to do with the real life of the local entrepreneurs?

According to the research data, the Republic of Kazakhstan occupies the 28th place among the states with the best conditions for doing business. Of the former USSR countries, Kazakhstan lets these five take the lead – Latvia, Lithuania, Estonia, Azerbaijan and Georgia.

Note that, since the times of Mikhail Saakashvili’s Presidency, Georgia has been a “golden child” of all the business ratings without exception. The three Baltic countries have joined the Northern Europe and the European Union (with all that that implies). But the success of Azerbaijan and Kazakhstan that are a little bit ahead of Russia (31st place) and a lot – of the rest of the former USSR countries is quite remarkable. Especially considering their obvious closeness – both states are united by the Caspian oil and gas.

On the ranking

The index of the ease of doing business is a complex structure that integrates 10 easily calculated indicators:

  1. Starting a business – procedures, time, costs and the minimal capital to start a business.
  2. Dealing with construction permits – procedures, time and costs.
  3. Getting electricity – procedures, time, costs.
  4. Registering property – procedures, time and costs.
  5. Getting credit — the strength of legal rights, the depth of credit information.
  6. Protecting minority investors – the transparency of financial reports, responsibility of the management and the ease of filing legal claims by investors.
  7. Paying taxes – number of taxes, time to prepare tax reports, total tax as a share of profit.
  8. Trading across borders – number of documents, costs and time required for exporting and importing the goods.
  9. Enforcing contracts – procedures, time and costs for enforcing debt payments.
  10. Resolving insolvency - percent of recovery and additional costs for closing the insolvent firm.

An easy life

Judging by the dynamics of the ease of doing business index in Kazakhstan, the life of the business in the country is getting better and better.

That is if we are to paraphrase Josef Stalin’s famous saying of 1935. Of course, he said that in regard to the people and not the business, but the idea was the same. Compared to the horrors of the collectivization, the life in the USSR had indeed getting better. Yes, a new wave of repressions was coming, then there was to be the war, but, in 1935, understandably, no one was thinking about that.

Kazakhstan’s Place in Doing Business

The hard reality

The methodology of the Index calculation is changing constantly which makes it difficult to build a time series. However, the trend is clear – for the past ten years, Kazakhstan (with some digressions) has been pushing towards the top 30. Thus, the Government really does have something to show to the political leaders as well as to the investors-entrepreneurs whishing to start their business in Kazakhstan.

But, unfortunately, the real dynamics of starting new businesses does not correlate with the Index’ dynamics.

New Enterprises Created

Source: Kazakhstan State Statistical Agency’s data 

 This is not at all surprising. Rakhim Oshakbayev, the Director of Applied Research Center Talap, once called the Kazakh business “an instrument for holding the oil annuity”. Essentially, this quite justified economic definition puts an end to any attempts, on the part of the Kazakh entrepreneurs, to rank Kazakhstan within the framework of the Doing Business ranking system. 

The dynamics of foreign investments in the Kazakh economy looks no less fascinating. Their correlation to the ranking is (quite predictably) absent.

The fact that the level of economic activity in a country is determined not only (and not so much) by a number of the technical parameters is clear to any person who had lived through the beginning of the 1990s when the presence of such limitations did not influence the crazy (in the literal sense of the word) business activity. And, with all the limitations, that truly was the business activity and not an attempt to get a foothold in the established system.

Direct Foreign Investments

Source: World Bank’s data 

The technical convergence

Currently, all the former USSR states (with the obvious exception of Turkmenistan that lives according to its own laws and rules) are among the 80 counties that provide the best environment for doing business. Even among the top 60, if we exclude Uzbekistan and Ukraine.

Private business is the essence of the market economy so, if we are to follow this logic, the market transformation of the Soviet system can be considered complete.

Some concerns arise from the fact that, despite the shared history, the countries with completely different economic and political systems have been marching together towards the top where, to the observers’ surprise, they remain.

Easier and easier. Convergence of the former USSR countries in terms of ease of doing business

The experts believe that, today, it does not take much to achieve such an “impressive” result if one hires experienced consultants capable of preparing you for any test.

The place in the ranking, in this case, simply becomes a political fetish.


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