Quality of Business and Investment Environment: An International Perspective for Turkic States

Quality of Business and Investment Environment: An International Perspective for Turkic States

Huseyin Aktas (Manisa Celal Bayar University, Turkey), Mahmut Karğin (Celal Bayar University, Turkey), Koray Kayalidere (Celal Bayar University, Turkey) and Tuna Can Güleç (Celal Bayar University, Turkey)
DOI: 10.4018/978-1-5225-2245-4.ch009
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Abstract

This chapter aims to explain the effects of Business Environment policies on global investment decisions by analyzing the effects and results of environmental reforms of 5 Turkic countries between 2004-2014 period. World Bank's yearly Doing Business reports are interpreted and potential effects of Business Environment reforms are calculated using Reform Calculator tool provided. Chapter is critical for understanding the influence of business environment policy decisions on globalization and capital movements.
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Introduction

Under current global economic conditions, private sector investments are one of the most important factors in achieving macroeconomic success. Private sector investments affect an economy not only through direct channels such as taxation, but also through indirect channels like employment rate. These investments may originate from external sources as well as domestic investors, however domestic investments alone are insufficient for utilizing its full potential especially for developing countries.

Global capital is limited, and nations worldwide are in competition to attract high quality investments. In theory, developing countries are expected to have higher rate of returns than developed countries in order to compensate for their increased risk levels. Even though risk and return are main financial variables in investment decisions, in practical form of business the ease of doing business in a country inherits numerous additional elements. According to Rogerson (2010), factors that improve or penalize ease of doing business in a country can be summarized under four main categories: “Stability and Security”, “Legislations and Taxation”, “Finance and Infrastructure”, and “Workforce Market”. These factors evaluate Macroeconomic and Political Stability, Culture and Customs, Physical Infrastructure, Accessibility to Capital and Humans Resources Potential. Through these factors an investment which is impractical, actually increases the costs of investment thus reducing the yield of project.

Since the ease of doing business in a country is one of the most important factors in investment decisions, the need for an independent authority to determine this factor arose overtime. As an independent organization, World Bank Group launched the Doing Business project in 2002 in order to evaluate various criteria and their effects on practical business concepts. Today the project is evaluating 189 economies worldwide. The report analyzes the business environment under 11 main titles consisting of:

  • Starting a business,

  • Dealing with licenses,

  • Getting electricity,

  • Registering property,

  • Getting credit,

  • Protecting minority investors,

  • Paying taxes,

  • Trading across borders,

  • Enforcing contracts, and

  • Resolving insolvency

The report ranks countries individually under each category based on factors such as the number of procedures required to achieve that step, the time it takes for procedures to be completed, or the amount of payment that must be made in order to complete that step. After individual rankings, a formulation ranks general score of nations to generate overall rankings. Countries may progress or regress in this ranking by making reforms in their procedures, making it easier or harder for potential investors to start a business compared to remainder of nations.

In order for countries to ascend in this ranking, they need to perform a series of reforms in observed fields. Actualizing reforms that require enacting laws or improving infrastructure may take a long time, while other reforms may demand relatively less time. For example, a reform concerning building “Registering Property” may take less time, while improving “Getting Electricity” may take much longer time due to infrastructure investments.

In this study, we discuss concepts regarding the business environments of Turkic Nations, namely Turkey, Azerbaijan, Kyrgyz Republic, Uzbekistan, and Kazakhstan. Each country report is analyzed along with the Doing Business simulator provided by the data supplier, and potential improvements to the business environment of that specific country are determined based on the previous reforms they have carried out over the years. We have determined several possible improvements and reforms using Doing Business 2015 Report.

Key Terms in this Chapter

Getting Electricity: This term tracks the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse. In addition to assessing efficiency of connection process, new indicators were added to measure reliability of power supply and transparency of tariffs and the price of electricity.

Getting Credit: This term explores two sets of issues—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending.

Paying Taxes: This term addresses the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as measures the administrative burden in paying taxes.

Starting a Business: This term measures the paid-in minimum capital requirement, number of procedures, time and cost for a small- to medium-sized limited liability company to start up and formally operate.

Trading Across Borders: Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Under the new methodology introduced this year, Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods.

Resolving Insolvency: This term identifies weaknesses in existing insolvency law and the main procedural and administrative bottlenecks in the insolvency process.

Registering Property: This term examines the steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute.

Dealing with Construction Permits: This term tracks the procedures, time and cost to build a warehouse—including obtaining necessary the licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections.

Enforcing Contracts: The enforcing contracts indicator measures the time and cost for resolving a commercial dispute through a local first-instance court.

Protecting Minority Investors: This term measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse.

Turkic: Relating to or denoting a large group of closely related Altaic languages of western and central Asia, including Turkish, Azerbaijani, Kazakh, Kyrgyz, Uighur, Uzbek, and Tatar. (Definitions are taken directly from Doing Business Report 2015 AU27: The in-text citation "Doing Business Report 2015" is not in the reference list. Please correct the citation, add the reference to the list, or delete the citation. )

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