The Economist USA - 26.10.2019

The EconomistOctober 26th 2019 Finance & economics 65

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more than half a billion internet users,

have been unenthusiastic too. Facebook

has said that, unlike most cryptocurren-

cies, Libra will be backed by a basket of as-

sets, including currencies and government

bonds. A report by theg7, a rich-country

club, nevertheless said that Libra, if widely

adopted, could pose a risk to the global fi-

nancial system and should not go ahead

until it could be proved safe. That Libra has

been described as a cryptocurrency (exact-

ly how it would work remains unclear) will

not have helped: regulators are well aware

of cryptocurrencies’ reputation for scams

and shady dealing.

Still, positive thinking is the order of

the day, at least in public. Mr Zuckerberg

talked at length about the value of innova-

tion, and Libra’s potential to spread free-

dom and democracy around the world.

After the defections from the Libra Associ-

ation earlier in the month David Marcus,

the Facebook employee leading the initia-

tive, tweeted that “in a way, it’s liberating”.

Perhaps. But Facebook may hope there is

not too much more liberation to come. 7

A

clothing workshop, with just two

sewing machines, established long ago

on the outskirts of Lima, Peru’s capital city,

may be one of the world’s most influential

companies, even though it never started

operating—and was never intended to do

so. The business was conceived as an ex-

periment by Hernando de Soto, a Peruvian

economist, who commissioned a team to

go through the motions of setting up the

firm. Their aim was to find out how long it

would take to comply with all the laws and

regulations required to start a business.

The answer was 289 painstaking days.

The answer now is a mere 26 days, ac-

cording to the World Bank’s latest report on

the ease of doing business around the

world. Inspired in part by de Soto’s exam-

ple, the bank each year asks thousands of

lawyers, accountants and other experts

how easy it would be for a company to ob-

tain an electricity connection, transfer the

title of a warehouse, enforce a debt con-

tract, pay its taxes and so on. Based on the

answers, the bank then ranks countries,

from New Zealand at the top to Somalia at

the bottom.

The report has its critics. Since it ig-

nores infrastructure, price stability, work-

force skills and the reliability of suppliers,

among other things, it is not really a sum-

mary measure of the ease of doing business

in a country. It is instead a snapshot of the

cost of complying with formal regulations

for companies that are not small enough to

dodge the law or big enough to bend it. In

one edition, the report described itself as a

“cholesterol test”. But it is sometimes inter-

preted as a full medical.

It has nonetheless become hugely influ-

ential. Costing less than 0.25% of the

bank’s operating budget, it has caught the

attention of some of the world’s most pow-

erful people. Narendra Modi, the prime

minister of India, has resolved to lift his

country into the ranks of the top 50 by

2020. It climbed to 63rd place this year,
      from 142nd when he took office. The coun-
      try’s success may have helped galvanise a
      similar effort in China (which improved
      this year to 31st place) and in Pakistan,
      which was also heralded this year as one of
      the ten most reformed economies.
      But the biggest improvement in score
      was awarded to Saudi Arabia. Once ranked
      tenth, it had slipped to 94th place by 2016.
      This year it bounced back to 62nd. It is now
      the cheapest (and third-easiest) place to
      transfer a property title to a buyer. Firms
      can get an electricity connection in 35 days,
      little more than half the time it took in


2021. The government has also set up an
      online one-stop shop, where an entrepre-
      neur can jump through many of the hoops
      required to start a business, instead of
      traipsing around multiple ministries and
      offices, for commerce, labour, social insur-
      ance, tax and Zakat (a religious tithe).
      The kingdom’s reform efforts were
      overseen by a dedicated committee, bring-
      ing up to 50 government bodies together,
      that met every Wednesday at 1pm. The
      committee also included business folk
      who explained how regulations feel to the
      regulated. The structure left the bureauc-
      racy with nowhere to hide. “You have to

come and either say you’ve done it; or if you

didn’t do it what’s stopped you,” says Dr Ei-

man Al-Mutairi, head of the country’s Na-

tional Competitiveness Centre. Any road-

block that lasted more than a week was

referred up to Mohammad bin Salman, the

kingdom’s crown prince.

Not all reforms have won favour with

business. Companies no longer need a gov-

ernment stamp on their registration certif-

icates, for example. But many firms want

one anyway, because it looks good on their

papers. It’s not easy to cut red tape when

firms treat it like a ribbon and bow. 7

HONG KONG

The remarkable influence of the World

Bank’s Doing Business report

The Doing Business rankings

First across

the tape

*Out of 190 countries

Podium finish

Source: World Bank

Ease of doing business index

Rank increases for the ten most improved countries*

150190 100 150

To g o

Saudi Arabia

Jordan

Pakistan

Tajikistan

Bahrain

China

Nigeria

India

Kuwait

2019 rank 2020 rank

← Harder Easier →

“B

uy my abenomics!”, Shinzo Abe, Ja-

pan’s prime minister, pleaded to the

New York Stock Exchange in 2013. As he

lowered the drawbridge to foreign inves-

tors, that pitch seemed to work. Today

overseas owners hold 30% of Japan’s topix

index of stocks and account for about 70%

of the daily turnover on the Tokyo Stock Ex-

change (tse). But new rules threaten to re-

verse these trends. 

A proposed change to the Foreign Ex-

change and Foreign Trade Act, unveiled on

October 8th, will lower the minimum stake

foreigners can buy in many listed Japanese

companies without prior government ap-

proval, from 10% to 1%. Other changes in-

clude requiring foreign directors to seek

official permission before they sit on the

boards of Japanese firms. 

The finance ministry says it wants to

protect sensitive sectors such as energy

and weapons manufacturing. But analysts

warned that the rules could choke off in-

vestment. Akira Kiyota, the head of the tse

told the Financial Timesthey were “abso-

lutely idiotic”. Under fire, the finance min-

istry clarified on October 18th that foreign

“portfolio investors” (such as banks, insur-

ance firms and asset managers) would not

need to seek prior approval, as long as they

could prove they had no intention “to in-

fluence management”. The tweaked legis-

lation was approved by the cabinet and is

expected to be passed in parliament by ear-

ly December.

But concerns linger. One is the law’s

broad scope. In addition to nuclear power

and aeronautics, its purview includes agri-

culture, transport, shipping, software and

internet services. Nor is it clear what

counts as infringement. Would a letter

from a foreign investor to the board of a

TOKYO

Are activist investors the real target of

Japan’s investment-screening rules?

Foreign investment in Japan

Capital control