Business, Letters & Opinion

‘Doing Business’ Report – The Myth

GORDON CHARLES of JQ Charles Group of Companies
GORDON CHARLES of JQ Charles Group of Companies
Image of John Peters
By John Peters

At the last annual general Meeting of the St Lucia Chamber of Commerce and Agriculture, President Gordon Charles described St Lucia’s slipping to 100th overall and sixth in the Caribbean in the “Ease of Doing Business” ranking as ‘ a humiliating experience’. His further comments left one with the belief that the sky is falling.

Do investors consider the “Ease of Doing Business” ranking as a determinant in deciding where to invest? Is a myth being perpetuated by the Chamber of Commerce, and if so, should such intellectual dishonesty be left unchallenged?

The ”Ease of Doing Business” report was launched in 2002 by the World Bank as an approach to provide fact based objective measures of regulations that are applied to small and medium enterprises throughout their life cycle. Some of these measures have been severely criticized as not reflective of the reality, however, I respect that a body of laws can affect the decision making process.

If we assume that the ranking carries the belief that a higher ranked country is more attractive to invest, then we can test the relevance of the report. China is placed at a ranking of 90th; Brazil is at 120th, India at 142nd and Russia at 62nd. These are the so called BRIC countries. Let us extend the analysis. Jamaica is at 58th position, Vanuatu (a small nation in the Pacific) is at 76th Antigua is at 89th, and St Lucia at 100th.

Can we conclude that Jamaica is a more attractive place to invest than Brazil, Russia, China and India?? Any business development professional working in a firm, who comes to the Board of Directors with an argument that he has reviewed the “Ease of Doing Business” report and has concluded that Jamaica is a better place to invest than Russia, China, Brazil or India, would be fired on the spot.

In small island states such as St. Lucia, the fundamentals for a decision on investment relates to the following:
a. Political stability
b. A skilled workforce
c. Low corruption
d. Sound Infrastructure ( air/sea/ telecom)
e. Efficient planning approval systems

This is where our focus has to be, passing a few laws does not improve the economy to the extent of a focused approach on the above.

I will take one metric to demonstrate the weakness of the “Ease of Doing Business” report. The Doing Business Survey has construction permits as one of its metrics. The measurement records the procedures, time and cost required for a small to medium sized business to obtain all the necessary approvals to build a simple commercial building with utility connections. St Lucia ranks 39th overall in the 189 countries surveyed, above the USA which is ranked 41st, and above Canada which is ranked 118th.

This is saying to any investor that once I have my plans prepared it is very easy for me to get them approved in St Lucia, faster than it would be in the USA and Canada. However when you go deeper into how the metric is developed, you then understand the skewed ranking. If you go under methodology on the website of the Doing Business under Construction Permits, you would observe a Questionnaire that is used as part of the survey. The time factor for approval is not based on historical experience but by what the agency has stated as the time frame for a response to an application.

So if the Ministry of Health has placed four weeks for example as the time for a response then that is included as the time for the procedure; if the Fire Department says twoweeks for a response then that is inserted as the time of the procedure.

The experience on the ground for most developers may not support these glowing rankings. I have known applications being stuck in these referral agencies for over three months. I would suggest that a greater focus has to be placed in creating a system that reduces the time for the approval of the permitting process.

In 2005 the American Institute of Architects commissioned a study to look at the relationship between permit processes, local economic activity and government tax revenues. The conclusions of the study are most revealing:
 Reducing permitting time by three months of a 22 month project cycle could make the difference in the decision of an investor to undertake or not to undertake a project.
 More efficient permit processes is an attraction to a developer as there is a faster return on investment
 Over a five year period, a reduction in permit processing by three months will result in an increase of construction spending by 5.7 %.

We can conclude that a low lying fruit that can be picked and thus create much needed victuals for the growth of the economy, is a very focused approach as to how we can reduce the time for processing an application for development.

Let us not be fooled into believing that a series of legislative reforms is the panacea for our economic woes. There is no evidence to demonstrate that any investor coming to St. Lucia places high priority to our ranking within the Ease of Doing Report. I maintain that this is a myth, and the perpetuation of this is a profound act of intellectual dishonesty.

I challenge any businessman in St. Lucia to categorically state that they have evidence that St Lucia has lost investment in 2014 due to the slide in our rankings. As stated before and shall be restated now, this is where our focus should be:
a. Political stability
b. A skilled workforce
c. Low Corruption levels
d. Sound Infrastructure ( air/sea/ telecom)
e. Efficient Planning Approval systems

So President Gordon Charles, I beg to differ on the focus of a ranking. I strongly suggest that the Chamber goes after the low lying fruits at the entrance to the Garden of Eden, and leave those fruits found in the middle. He that hath ears to hear, let him hear.

10 Comments

  1. I would add one – flexible labour regulations. Employment regulations can be burdensome if not introduced sensibly.

    Unfortunately SLU does poorly on all these metrics. There is little accountability so the civil service don’t feel obliged to up their game. I always repeat this point, too many of those who seek high office are not mentally equipped for the actual rigours involved.

    Once the grandstanding of elections finishes, there is a lot of granular detail at department level which needs to be implemented; processes, systems and ongoing performance measurement of those systems. Many people are not suited to it and it’s tedious work – but because the politicians can’t or won’t take an interest in the detail, things never improve.

    You can’t fix a problem if you can’t measure it.

    1. It is sad that because of pride, the SLP and the UWP, even the Saint Lucia CoC have not supported the LPM’s view that the entire country has to move up the global technology value chain as a stated policy of improving economic prospects of this country. When will we learn to drop the “half-fast” tribal political approach that we have tied this country to, since we took responsibility of our own internal affairs?

    2. What a joke that Chamber of Commerce is and remains. Little wonder Saint Lucia has had so little to export anywhere since the WTO (World Trade Organization) scuppered the local banana industry.

      How much influence has the Chamber exercised on what goes on in this industry? Does it not still remain a clique of the merchandising commission agents? Realistically, explain why not.

  2. Thus said the TQM Guru: ‘If it is measured, it can be improved’.

    That said, our industrial posture is not very attractive to capitalistic investors especially in the tech industries. We have a very active labour environment in terms of labour relations. This level of trade union activity frightens certain companies.

    In addition, we do not have the human capital whatsoever at any level, to partner with suitable investors residing overseas. No joint ventures and no partnerships are in the offing in our ‘greenfield sites’. In the last few years, as an index of the suitability of our locale, we have even seen the withdrawal of franchises. Our technical skills levels are just too low, the learning curves too steep, and the absorptive capacity of the domestic workforce regarding the transfer of technology, almost non-existent.

    To depend on just one single index as ‘ease of doing business’ as a motivator or inducement for attracting FDI into the country is to betray an abysmal lack of management and business knowhow. It is rather pathetic that such simplistic thinking would so repeatedly characterize the posture of the Chamber of Commerce.

  3. While the doing business report is not perfect in its analysis, it has been accepted as a globally fair measurement mechanism that reflects the key metrics that investors consider. Your alternative is rather simplistic, narrow and lacks sufficient details to be taken seriously. I shall challenge you on two accounts. First, your questioning of the relevance of the report and the alternate metrics that you see as being important. Second, Your questioning of whether firm’s would invest in better ranked countries over lower ranked ones.

    Saint Lucia like all other small island developing nations, must seek to improve their rankings on this globally respected report (Doing Business) rather than screaming about its lack of objectively when its suits politicians and others (e.g. you). While it is not the only tool that investors use, it is an important and fairly credible one. I therefore challenge you to empirically prove that investors do not use this tool in their decision making! The chamber president is right in bemoaning St Lucia’s decline and should work with the government and other actors in improving the island’s position.

    Investors, perhaps St. Lucian investors to a lesser extent, are concerned not just with the level of growth in an economy or the size of an economy. If these were the only criteria investors would only invest in larger high-growth economies (e.g. those in the BRICS). While these economies cannot be ignored as size matters, political stability and corruption levels are likewise important. In the latter regard BRICS nations are weak because though they are relatively stable politically (and communists – China and Russia), they all have high levels of corruption and high levels of unpredictability. Laws can change over night without much discussion with business interests and regulatory systems are weak (they depend more on human actors rather than on having a functional system that works). For these reasons, higher ranked counties such as Jamaica (but will smaller economies) will gain the attention of investors and will be considered as part of a portfolio of investment decision factors. The same applies for Singapore, the highest ranked country on the Doing Business List. Although it is a small-state developed country with what some may term draconian laws, Singapore continues to attract much FDI business of its overall system of low corruption and high predictability in terms of its legal, regulatory and social systems. Minus the draconian laws, it may well be in Saint Lucia’s and other Caribbean nations’ interest (e.g. Jamaica and Antigua and Barbuda) to emulate Singapore in becoming more business friendly in attracting more foreign and local investments rather than remaining in their little silos and complaining about globally-accepted and used benchmarks such as the Doing Business Report.

    In light of the above, I should like to suggest that the debate be shifted to examine why St Lucia fell and more importantly, what needs to be done in order to improve the nation’s fortune once again. The debate should go even further by considering how St Lucia plans to develop its human capital in preparation for increased foreign direct investments after the nation identifies what type of investments it is looking for and what industries it is seeking to become global leaders in.

  4. Additionally, FDI per capita would be important metric to review rather than simply making unsubstantiated statements about the degree to which BRICS or higher-ranked countries receive more investments. Absolute dollar values would be the wrong way to look at this. E.g. How much FDI has Russia received since its recent conflict with Ukraine? Is this political risk not affecting her ability to attract FDI notwithstanding it being a BRICS nation? Go figure (assignment for you John Peters)!

    1. Except for the last paragraph which redeems the boatload of balderdash otherwise freighted in here as useful to address the situation, the writer appears to be involved in mere textbook recitation. A failure to recognize the totality, or better, more comprehensively the factors taken into account in the decision-making to engage in FDI does suggest armchair expertise only.

      An understated factor is infrastructure: the education system, technical (engineering) expertise, telecommunications, reliability of electricity supply and the grid, the water supply reliability and quality. Add to that cultural issues: work ethic, labour relations, governance issues with party politics, the court system, the crime rate, and lastly but critically, the ABSENCE OF CORRUPTION (where culturally Saint Lucia has a known borbol reputation nationally, where even government ministers and ENTIRE CABINETS are High Court-acknowledged, full participants on more than one occasion). Do you believe that these matters are not documented in official advisories about “the best places to do business” around the world?

      Are you aware of the operations and roles of such institutions: The Ex-im Bank, and the U.S. Department of Commerce, as the most comprehensive source of information for U.S. firms
      where they can get for example, a “best prospects” list of potential foreign distributors? Would we even qualify for inclusion in this listing? Do we have the necessary business infrastructure to become the mass production centre for anything produced locally?

      As a litmus test regarding the obsession with the ranking, answer these simple questions: Why did Saint Lucia NOT fare a lot better when it did have the higher ranking? Why did that ranking, of itself, NOT help us create an avalanche of investors falling over each other in a line to set up shop in Saint Lucia? Why do we only have the Roachamel, Black Bay and Grynberg investments as the major highlights of recent FDI activity before the drop?

      Our past ministers of finance are on record as NOT having any business savvy at all. Geest pulled out. Compton did not get the signal.

      There was a merger by a distributor of our bananas. Kenny saw that as reason for optimism.

      What do these tell us other than we continue to see halos above the heads of our personally-created saints? Are we sensitive to what it takes to be a suitable location to do international business, which is BASICALLY what FDI is all about?

      Hey! I hold no brief for the man. But Mr. Peters stands out as one of most advanced and knowledgeable writers on critical success factors regarding this polity and its political economy in the last 30 to 40 years!

      1. Hi Phillip,

        You have raised some good points but have unfortunately chosen to focus on the political dimension and on previously failed FDIs. Beyond this (politics), which is important but does not represent the entire picture, you have not provided the data that could answer you own question (did SLU enjoy more FDIs when it had a better ranking). It would appear that the answer to this question is yes, since those investments (e.g. Black Bay and Grynberg) came when our island enjoyed better rankings. Have we received similar levels of FDI in recent years when our ranking started slipping?

        I am not interested in debating whether past and present St Lucian politicians were/are bad negotiators at this stage, my interest and by extension this debate, is about whether the Doing Business Report is an important consideration for attracting FDIs. To that, I maintain that it is an important consideration, though not the sole consideration.

        I have much respect for JP, so this is not a personal or political issue. Indeed, this debate is about an issue that is of national importance for which I have registered my disagreement with aspects of JP’s article and segments of your commentary.

        1. Mr. Brown,
          You too, seem to have become overwhelmed by the amount of information that has to be appraised to arrive at a reasonable conclusion and decision regarding this national issue.

          The matter that stands quite squarely before us is NOT one of scoring on an index, but getting MORE beneficial FDI for this country. Emphasis, or a focus on anything else — matter-of-factly — if not ridiculous, is quite frankly MISPLACED.

          Since the nation is NOT — apparently getting any sizeable injection of new FDI, what the heck is wrong with looking at what we have recently been able to get. Your criticism of the writer above seems very ODD and quite awkward.

          Taking a closer look: Roachamel cost Saint Lucians some $45 million including opportunity cost, to generate some 600 low-wage paying jobs for mostly maids and bellhops. The striking rate of job creation was $75,000 per job, or per capita. How many of those people earn $75,000 per annum?

          The Black Bay Lands investment saw no return on investment, or a DOUBLE negative ROI. We had an asset that became “lost in the sauce” of the green-hornism of a business novice. No DUE DILIGENCE! Perhaps that one has never ever heard of this or knows what it means. Today, the loss cuts deeply and twice. We lost $86 million (the appraised value of the land) and now we have to fork out $86 million plus to repurchase it, at the market rate.

          Grynberg was to initiate oil exploration with foreign assistance — corporate, or government-to-government assistance. That did not even get off the ground! But we owe upwards of $500 million, plus legal costs in potential financial cost obligations. Meanwhile, more difficult-to-exploit deposits of oil are becoming less viable and attractive business propositions as the price of oil takes a plunge to $60 per barrel. (This even raises thousands of bristling question marks regarding Petro Caribe.)

          In conclusion, if there is no review of decisions made, it shows that we are not ready to improve, or even to tweak even our position on FDI.

          See? We have not even vague targets to pursue or compare. Thus we are content in repeating the mistakes of the past, and to support the twattle that we focus on an index singing “everything gonna be alright”.

          We have lost our way. But, are we insane as well?

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