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Korea Offers Generally Improved Business Environment Going into 2016
Benefits for Doing Business
Korea Offers Generally Improved Business Environment Going into 2016
  • By Jung Suk-yee
  • January 29, 2016, 04:45
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On Oct. 28, 2015, the World Bank announced its “Doing Business 2016” report, and the Korea Trade Promotion Corporation (KOTRA) analyzed the report from the Korean perspective. Korea ranked an overall fourth among 189 countries, which is the country's best-ever results. Korea was ranked seventh in 2013 and fifth in 2014. The top three ranked countries are Singapore, New Zealand, and Denmark in order. Hong Kong ranked fifth, the U.S. seventh, Japan 34th, and China 84th.

Among a total of 10 indicators, four of them -- Registering Property, Protecting Minority Investors, Enforcing Contracts, and Resolving Insolvency – improved compared to the 2014 appraisal. In contrast, five indicators -- Starting a Business, Dealing with Construction Permits, Getting Credit, Paying Taxes, and Trading Across Borders -- dropped. And one, Getting Electricity, remained steady in first place.

Each improved score has quantifiable reasons behind it. The Registering Property indicator moved up because the registration time required was shortened from 7 days in 2014 to 6.5 days in 2015, and the efficiency of land administrative procedures received high scores, 27.5 points out of 30 in the evaluation. Protecting Minority Investors ranked eighth, a 13-step improvement from 2014. The rank of Enforcing Contracts rose because the efficiency of legal procedures received high scores by reducing the time, cost, and procedures to resolve legal disputes using the Electronic Filing System introduced in 2011. The Resolving Insolvency indicator also moved up since the payback rate of credits slightly improved.

The indicators that decreased did so in part because the evaluation methods changed and because other nations improved. The changed methods decreased the ranks of all Asian countries in the Trading Across Borders indicator, whereas landlocked countries and countries that made a customs union, especially EU countries, received higher scores. Korea ranked third in 2014 but dropped to 31st in 2015. Hong Kong ranked second in 2014 but fell to 45th in 2015. And Singapore ranked first in 2014 but dropped to 41st in 2015. Korea also got a score of 29 in the Paying Taxes indicator, which is a drop of 4 places from 2014. The score dropped because the number of taxes to be paid increased from 10 to 12, and the effective corporate tax, property tax, social insurance, and national pension rates increased from 32.4 percent to 33.2 percent. Korea's Dealing with Construction Permits indicator ranked low this year because the country only got 8 points out of 15 in the Ensuring Construction Quality Safety Index, which is a new criterion. Korea's Getting Credit indicator ranked 36th in 2014 but 42nd in 2015, and the country's Starting a Business indicator dropped from 17th in 2014 to 23rd in 2015, both changes because other countries improved their rankings.

Finally, Korea ranked first in Getting Electricity in 2015 consecutively after 2014, resulting from a high appraisal of getting electricity reliably and the transparency of rate charges.

The World Bank has broken each country’s business environment into ten indicators according to the business life cycle, from Starting a Business to Resolving Insolvency. It also measures the regulations that businesses face in each stage in terms of procedures, time, and cost by 34 more detailed indicators.

This assessment looks into the existence of regulations and procedures and, depending on the legislator’s efforts, there may be many future possibilities for institutional improvements based on this assessment. However, there are limitations too. The assessments are only answered by experts in each field, and there is always a knowledge gap between real entrepreneurs and experts. In reality, entrepreneurs may not know what needs to be done or how to comply with regulations. Not only that, the assessment only focuses on the largest business city in each country, which reduces the representativeness of the data for an entire nation if there are considerable differences across locations. It also mainly focuses on the domestic formal sector; it fails to reflect any informal realities on the ground or for foreign firms that face a different set of regulations.

In each nation, experts such as lawyers, accounts, licensed customs agents, and consultants answered this Doing Business 2016 inquiry. Sixty-six experts answered in Korea in 2015