Silly rankings don't help
The World Bank's Doing Business ranking is easy to trick and should be changed
In 2007 Georgia overtook Germany in the World Bank Doing Business ranking. In 2012 Macedonia overtook Switzerland. In 2019, Georgia and Macedonia rank 6th and 10th of 190 countries. This is not because it is easier to do business in Georgia and Macedonia than in Germany and Switzerland. This is because the ranking is based on ten simple indicators that can be easily manipulated. The World Bank should urgently review its methodology.
On 27 August 2020 the World Bank announced that it would conduct a systematic review of data changes in the last five Doing Business reports. Independent auditors will probe data collection and review processes. "The publication of the Doing Business report will be paused as we conduct our assessment," the bank said.
ESI report: Rankings that fail - Bosnia, Macedonia and Doing Business 2015 (23 May 2015)
After Georgia moved up the ranks a decade ago, other countries started to emulate its "success." By 2019, Macedonia has safely overtaken Germany (24th). Azerbaijan (25th), Kazakhstan (28th) and Russia (31st) have overtaken Switzerland (38th). Kosovo is close behind (44th).
Unexpected success stories reinforce the World Bank's message that if any country follows concrete prescriptions it will achieve amazing results. It is the promise of fairy tales: the ugly duckling turns into a beautiful white swan, giving hope to all ugly ducklings in this world.
The problem is that the ranking is based on ten simple indicators that can be measured across all countries on this planet, from very simple economies based on subsistence agriculture and small businesses to advanced high-tech and service economies. To suggest that the number of days it takes to register a shop or café is one of only ten decisive indicators for a country's business environment is misleading.
The analysis excludes any indicators specific to either simple or highly advanced economies. It does not take into account many factors that are obviously crucial in an investor's decision to invest, including security, market size, macroeconomic stability, state of the financial system, and level of training and skills of the labour force.
Nevertheless the ranking is popular and taken seriously. In Bosnia, improving its Doing Business ranking became part of the reforms the EU expected Bosnia to carry out most urgently. It even turned into an EU condition for accepting a membership application.
In March 2015 ESI wrote to the Bosnian Presidency, suggesting 14 simple steps to turn Bosnia into a wunderkind in Doing Business rankings. We argued that while a rise in these rankings would not change the business climate – for this other reforms are urgently needed – it would take away an excuse to further delay Bosnia's EU integration process.
Bosnia improved spectacularly in the rankings for 2016 (published in late 2015), "jumping" nearly 30 places from rank 107 to rank 79 within one year.
A closer look, however, reveals that Bosnia did not change anything. The improvement was due to what the World Bank calls "data revision" of previous rankings. This meant that the World Bank retroactively changed Bosnia's 2015 rank from 107 to 82. In 2016 Bosnia thus improved only by 3 places, from 82 to 79. But nobody knew what to make of this ranking, as another "data revision" was to be expected twelve months later ...
The European Commission has stopped making references to the Doing Business rankings in its reporting on the Balkans. But the ranking remains popular. In light of the methodological problems World Bank should undertake a serious review of its approach.