According to the Doing Business study, Georgia has moved from the 8th to the 15th position in 2014 as compared to the previous year. Minister of Economy of Georgia, Giorgi Kvirikashvili, made a statement about this issue on Maestro’s Business Contact saying that the worsening of Georgia’s rating in the Doing Business study was mainly due to the new research methodology. “According to the new methodology, Georgia holds the 14th position in 2014 and the 15th

in 2015. Hence, we have a one-position improvement,” (this is probably an error and the Minister meant to say “worsening”) said Mr Kvirikashvili.

FactCheck

took interest in this statement and verified its accuracy.

Doing Business is the World Bank’s study which has been conducted in all of its member states since 2004 and aims to assess their particular business environments. Doing Business uses ten components in its assessment:

  • Starting a Business;
  • Dealing with Construction Permits;
  • Getting Electricity;
  • Registering Property;
  • Getting Credit;
  • Protecting Minority Investors;
  • Paying Taxes;
  • Trading across Borders;
  • Enforcing Contracts;
  • Resolving Insolvency.
There have been certain methodological changes in the Doing Business study this year. In addition, the data of 2013 was re-calculated which resulted in Georgia’s rating being changed, moving from the 8th to the 14th position. This year, according to Doing Business 2015, Georgia holds the 15th

position.

The following components are new to Doing Business for 2015:

  • Methods of rating calculation have changed;
  • An additional study on second largest cities for 11 countries with the world’s largest economies has been added.[1]

Assessment criteria have been changed in three main components:

  • Getting Credit;
  • Protecting Minority Investors;
  • Resolving Insolvency.

The new method pays attention to the differences in the country’s rating in various components; namely, the bigger the difference is between the components, the bigger the chance is for the country to hold a low position in the ranking. For example, Georgia holds high positions in certain components (Registering Property – 1, Starting a Business – 4) whilst holding much lower positions in others (Resolving Insolvency – 130, Protecting Minority Investors – 43, Getting Electricity – 36). Because of the variations between the different components Georgia moved to a lower position (14) after the re-calculation of 2013 data as compared to the position held previously (8). It should be noted that when assessing the aforementioned components, 2014 was the first year when the assessment focused upon the quality and effectiveness of the procedures necessary to start a business.

Due to the changes in methodology,

the assessment of the following components was changed in 2013:

  • Dealing with Construction Permits;
  • Registering Property;
  • Resolving Insolvency.
According to Doing Business 2014, Georgia’s rating worsened in five components and significantly improved in one component (Resolving Insolvency), moving from the 130th to the 122nd

position (see Chart 1).

Rating

Distance to Frontier[2]

2013

2014

2013

2014

Georgia’s Rating

14

15

79.61

79.46

Starting a Business

4

5

97,72

97,73

Dealing with Construction Permits

3

3

91,43

91,44

Getting Electricity

36

37

84,64

84,69

Registering Property

1

1

99,87

99,88

Getting Credit

5

7

85

85

Protecting Minority Investors

43

43

60,83

60,83

Paying Taxes

22

38

86,99

82,76

Trading across Borders

31

33

84,08

84,02

Enforcing Contracts

23

23

71,82

71,82

Resolving Insolvency

130

122

33,68

36,48

Source: https://www.doingbusiness.org/data/exploreeconomies/georgia

The changes in the component of Resolving Insolvency were mainly due to changing the maximum time for paying taxes from 280 hours to 362 hours which was a result of the imposition of a new version of the income declaration. According to the 2013 study, the amount of time spent for paying income tax was equal to 109 hours whilst in 2014

it increased to 191 hours.

Taxes

Number of Payments in a Year

Time

Share of Payments in Income

Doing Business 2014

Old Methodology

5

280

16.5

Doing Business 2014

New Methodology

5

280

16.5

Doing Business 2015

5

362

16.4

2014 Rating

22

2015 Rating

38

Source: https://www.doingbusiness.org/data/exploreeconomies/georgia

As concerns Georgia’s rating, there have been no serious changes in the remaining four components (Starting a Business, Getting Electricity, Getting Credit and Trading across Borders). Further, the time and amount of procedures has also not changed although expenses have fallen to 3.4% of the income per capita instead of the previous 3.8%. The expenses for getting electricity have also decreased from 561.8% of the income per capita to 503.8%. However, despite the decrease, the number remains high. The credit availability indices have also been improved. There have been no changes in the procedures of trading across borders.

Even though the business environment in Georgia has not worsened over recent years, according to the Doing Business study, there has been no major reform in the field of business for the past two years.  The number of reforms aimed at improving Georgia’s business environment was quite high in previous years (see Chart 3). In 2007,

Georgia was amongst the top ten countries with reforms in the field of business. The reforms carried out in 2012 improved Georgia’s ratings in six components (Trading across Borders, Getting Credit, Paying Taxes, Resolving Insolvency, Getting Electricity and Enforcing Contracts). Given the fact that Georgia’s ratings are still quite low in some of the components, the business environment needs to be improved or its ratings could worsen in the future as well.

Year

Number of Reforms

2007

6

2008

4

2009

2

2010

4

2011

4

2012

6

2013

1

2014

1

  Conclusion Georgia held the 8th position in the Doing Business 2013 study whilst moving to the 14th

position after the data was re-calculated according to the new methodology. The majority of the study’s ten components has not changed or has slightly improved. The new methodology not only focuses upon the ratings in certain components but also pays attention to the differences of the country’s rating in different components. Georgia’s low rating is mainly due to the variations between the different components. Hence, the Minister’s statement that the worsening of Georgia’s rating is due to the changes in the methodology is correct.

Georgia’s rating in the Doing Business study has worsened further in the Doing Business 2015 study as the country occupies the 15th

position. Tightening the assessment criteria has caused the business environment component rating to decrease. Increasing the time spent for paying taxes from 280 hours to 362 hours has also had a negative effect. In addition, according to Doing Business 2015, there have been no major reforms in the field of business in 2014.

FactCheck concludes that Giorgi Kvirikashvili’s statement is HALF TRUE.


[1]

Doing Business researches a city in each country with the highest number of businesses situated in it. In 2014, the study started to research second largest cities by business concentration in the 11 largest economies of the world.

[2]

Distance to Frontier shows how close the economy of the country is to an ideal. According to this methodology, all components are given points and summed. The higher the sum of points, the closer the country is to an ideal situation.


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