World Bank’s new Business Enabling Environment Project Survey: more of the same

April 22nd, 2022

The new initiative has not learned any lessons from the failures of the previous Doing Business report on how to rethink the economy after the Covid-19 pandemic.

As the World Bank Group and the Intentional Monetary Fund Spring Meeting are underway this week, the Bank seems intent on moving ahead with its Business Enabling Environment Project Survey (BEEPS). The BEEPS is meant to replace the previously discredited Doing Business (DB) report, the World Bank’s most widely viewed publication and whose content steered policy decisions worldwide.

As Covid-19 struck in 2020, the DB report was put on hold due to irregularities spotted by the Chief Economist of the Bank. In September 2021, the DB report was finally discontinued following a published investigation conducted by David Malpass, the current World Bank president, regarding the rating manipulation efforts. Specifically, a law firm revealed data manipulation to change the rankings of five countries: China, the United Arab Emirates, Saudi Arabia, Jordan, and Azerbaijan.

The DB report proved highly damaging to global development, pushing countries to implement reforms that often undermined social protection and development, subsequently harming citizens. Despite the World Bank knowing about the findings of the Malpass investigation in 2020, it took until March 2022 for the Bank’s accountability body, the Independent Evaluation Group (IEG), to publish a damning report on the developmental effects of using crude rankings of lower business taxes, employer social security contributions, and shorter business registration delays in the global South as an indicator on overall economic performance.

The World Bank’s BEEPS is meant to resolve these issues, but in reality, it seems like a mere rebranding of the DB report. For example, BEEPS still says that “taxes represent a cost of doing business,” adding that “one cannot say that there is a direct benefit of tax payments to offset the burden that those payments represent to the company.” This sentiment seems very out of touch after Covid-19 and the vast government stimulus and intervention needed to get us out of the crisis, not to mention the economic shock provoked by the Ukraine war.

One of the only original things about the BEEPS is that it no longer considers lower taxes and lower social protections in the overall indicator, which determines a country’s score or ranking. This change is necessary since governments have been competing on the DB report to improve their rankings and set their targets by lowering taxes, even if that meant investing less in social protection.  For example, Bangladesh fought to achieve top 100 country status from the 2019 position of 168th. Kenya set the target to be among the top 20 countries in the survey by 2022, from 56th. Similarly, South Africa aimed to be in the top 50, from its 2020 position of 84th. However, the BEEPS still indirectly argues that taxes and social protection are bad for the business operating environment, even if they are not using them in the ranking.

When we look at reforms that counted towards improving country rankings under the DB report, the issue of ‘paying taxes’ was the second-highest indicator, with 403 reforms between 2010 and 2020, including cuts in corporate taxes and employer social security costs. We can expect to see more of these regressive reforms celebrated in the future, even if they do not affect the countries’ ranking.

The indicator used for ‘paying taxes’ includes the controversial ‘Total Tax Contribution’ (TTC) from the global audit firm PWC. Any total tax contribution above 26.1% gave negative points in the ranking (including corporate tax, mandatory social security contributions, pensions, and other business taxes). The vast majority of countries were above this level, with the mean being around 50%, while some countries were even over 100%, showing the indicator’s poor design.  Further, this implies that taxes that affect businesses are bad, while taxes such as value-added taxes (VAT), borne disproportionately from poor households and women, are better alternatives.

However, the BEEPS continues to signal a relentless focus on reducing business regulation, business taxation, and contribution to society in the coming years. Its vague use of aggregate scoring and country rankings threatens to incentivize a ‘race to the bottom’ among countries in terms of deregulation, which is indeed more of the same.  Also, business registration seems to be more about the speed of getting registered rather than doing due diligence on the real owners of companies and their beneficial owners being verified and checked, which takes time.

This continuing focus on business deregulation comes even though big businesses that were surveyed for the WEF’s Global Competitiveness Report (GCR) recognize that governments seek a stronger state to help them navigate the multiple crises facing them, their workers, and overall society in the coming years. Alarmingly, the BEEPS does not seem to take any criticisms related to its narrow focus into account and is thus making itself obsolete.

Unless the World Bank changes its course and modifies its current BEEPS proposal, we will likely see a more pronounced loss of confidence in the Bank’s advice to countries. This decrease in confidence comes due primarily to the Bank becoming increasingly controversial and out of touch with reality by celebrating regressive tax and social protection policies as examples of good reforms. The BEEPS is expected to be launched next year, which should still give the World Bank enough time for thought, or so we hope.

Written by Matti Kohonen

Director, Financial Transparency Coalition

Follow @FinTrCo