Business Analysis: It has got to get easier than this!!

  • 2011-01-13
  • By Charles Cormack

Towards the end of last year President Valdis Zatlers called on the new Latvian government to focus efforts on cutting red tape and improving the business environment for local and international businesses.  As an international businessman working here, I support the sentiment, but have severe reservations about the government’s ability to deliver this, as it is going to require more that the passing of more laws and regulations.

All three Baltic governments set great store by the World Bank “Ease of Doing Business Index” and other global business-friendliness rankings. This is understandable as it is a way to demonstrate to the world that you are a modern, flexible and open economy. However, as with any “Index,” it sets criteria against which you are measured, and if you focus efforts on those criteria then by definition your position will improve. But the most effective barometer of the ease of doing business is not some global marking system, but the sentiment of business people working in the market.

Across all three Baltic States governments have been making the right noises about creating a simple business environment, and a level playing field for all. Indeed, the “Ease of Doing Business Index” demonstrates all three Baltic States have been making impressive progress, with Estonia leading in the global rankings at 17, followed by Lithuania at 23 and Latvia at 24. All three countries have been showing steady improvement over the past three years, and to an outside observer the Baltic States look an easier place to do business than just about any Central and Eastern European country, apart from Georgia, and better than many more established economies, including France, Switzerland and Italy.

Certainly there have been efforts to streamline many of the processes involved in setting up and managing a business, and these are to be applauded.
So on the face of it things are good and getting better. Why then does it not feel like that to so many of my international colleagues trying to develop businesses here?

I think one key issue is the mindset of many government officials involved in regulating business.  In the Baltics many seem to be on a mission to make things difficult for business. There is often no effort to work with businesses to help them comply with a regulation, or an issue they may have. Instead, they behave like automatons, if you fail in any small element of compliance; they take great pleasure in refusing or fining you.

I regularly hear stories from international companies who work here about frustrating experiences with government departments. There seems to be feelings amongst many international companies that many government officials are on a mission to hamper, not foster, economic investment and development.

We also often run into issues around tendering. Many of our clients are keen to partner with local companies to take part in tenders in the Baltics. However the requirement for documentation to support tender applications seems to be overly-complicated, and not relevant to many international companies. For example, there is always a requirement to produce a certificate to show that you do not owe any taxes. In the UK it is not possible to get that document, as our tax authorities do not issue one. The result is that some international companies can only ever “partly comply” with the requirements. You would think addressing this with detailed guidance notes would be relatively simple, so why doesn’t it happen?

We often hear talk in the Baltics from politicians about fostering the spirit of entrepreneurship and business, but that needs to go further than just establishing regulations. To draw an analogy, it is as if the Baltic States are creating a world-class swimming pool, however, instead of giving international patrons buoyancy aids, they are distributing obligatory iron weights to be worn at all times.

For the Baltic States to become genuinely business-friendly, I think the governments need to focus efforts on training and empowering government officials to be helpful to business, not hinder it. I have seen what a difference a positive attitude can make; over the past 12 months I have seen at close quarters the efforts that Invest Lithuania make to attract international business, and I have to say if that can-do attitude could be translated to other government agencies, then President Zatlers and others would get their wish.