Economic Snapshot – The Ease of Doing Business Index
The World Bank’s Annual Ease of Doing Business Index reviews the ease of doing business in many of the world’s countries according to ten different parameters: Contracts enforcement, investors protection, dealing with construction permits, starting a business, closing an business (resolving insolvency and bankruptcy), paying taxes, trading across borders, getting electricity, getting credit and registering properties. The index has great implications on a country’s image, as a high ranking in it is considered to be an indicator of the future feasibility of making foreign investments in this economy (a marker of the level of attractiveness for investors who wish to “do business” in various places across the world, who take into account this prestigious international index of the World Bank). The top ranked countries in 2020 were New-Zealand, Singapore, and Denmark, while the bottom ranked were Venezuela, Eritrea and Somalia.
Israel was ranked 35th in the 2020 Ease of Doing Business Index of the World Bank, an ascent of 14 places from its 2019 rank, when it was ranked 49th (in 2018 it was ranked 54th), thus completing a second year of rising through the ranks, with a cumulative rise of 19 places. Over the previous decade, Israel consistently descended in the rank.
The main reasons for the 2020 ranking improvement: improvement in the ease of paying taxes indices (some of the payments can be executed online), the ease of registering a property (transferring the land registration services to the internet) and the ease of getting credit (following the commencement of Credit Data Law which improved the access of the public to credit).
This alongside the maintenance of high parameters in the protecting minority shareholders’ rights and liquidation and bankruptcy proceedings.
Israel’s rankings in the Doing Business Index over the past decade
Source: The World Bank
Israel’s global rankings by constituent parameters (sub-indices) – 2019-2020 data
Source: The World Bank
Sub-indices where Israel in ranked relatively high, and which had a positive effect on Its overall ranking in 2020
- The Ease of Paying Taxes: Israel was ranked 13th in the world in this sub-index, ascending 77 places compared with the 2019 ranking where it was ranked 90th. According to the data, an Israeli business pays taxes 6 times a year and spends 234 hours on this. The great improvement in this sub-index results from the 2018 reform and switching to online financial reporting (before 2018, Israeli businesses were required to submit annual financial statements to the Tax Authority manually). In addition, tools for making some of the tax payments online were made available over the past year, including the payments of VAT, customs and real estate taxes.
- Protection of Minority Shareholders: Israel was ranked 18th in the 2020 ranking, ascending 5 places from the 2019 ranking, when it was ranked 23rd.
- Starting and Closing a Business: Israel was ranked 28th in the world in the ease of starting a business (it takes on average 11 days to register a business in Israel), compared with the 45th place in 2019. In addition, Israel was ranked 29th in liquidation and bankruptcy proceedings in 2020 (a liquidation proceedings takes on average about two years), identical to its 2019 ranking.
Sub-Indices that had a negative impact on the overall ranking of Israel in 2020
- Enforcement of Agreements: Israel was ranked 85th in the world in this sub-index in 2020 (an improvement of 5 places compared to 2019, when it was ranked 90th) – data indicates that it takes 975 days to enforce and agreement in Israel, compared to an average of 650-700 days in other ranked countries.
- Trading Across Borders: Israel was ranked 67th in the world in the sub-index in 2020, a 3-places drop compared to 2019. Foreign trade in Israel is characterized by extensive bureaucracy and high regulatory barriers, which lead to its low ranking in this sub-index.
- The Ease of Connecting to the Power Grid: 83rd in the world in 2020 (compared with 78th in 2019) – according to data, it takes 102 days, in average, to connect a business to the power grid in Israel.
Sub-Indices in which Israel Improved, but still isn’t Ranked High
- The Ease of Registering a Property: Israel was ranked 75th in the world in this sub-index, an increase of 14 places compared with the 2019 ranking and a cumulative increase of 55 places in the past two years (Israel was ranked 130th in the world in 2018) – following a reform in this field – transferring the Land Registrar’s services online (the “Tabu Online” Reform – computerizing the Land Registrar Services).
- Ease of Getting Credit: Israel was ranked 48th in the world in this sub-index in 2020, a 12 places increase compared with the 60th place in 2019. Most of the increase is the result of the commencement of the “Credit Data law” during 2019, which is aimed at expanding the availability of credit to the public (providing a broad view for creditors – receiving extensive data on the borrower’s debit conduct).
A Broad Spotlight on an Index – The Ease of Getting Credit
Israel recorded an increase in this index in 2020, for the first time in three years, on the back of the commencement in 04.2019 of the new Credit Data Law that was led by the Bank of Israel. The new law defines the financial information that is collected on individuals, the ways in which such data should be distributed and also creates a venue for credit data sharing between Israel’s financial institutes. In this framework, a dedicated database which is managed by the Bank of Israel was established. This database receives reports from banks and reporting corporations (Entities which extend credit with overall transactions amounting to more than NIS 250 million). Simultaneously, credit chambers for ranking borrowers on the basis of the database’s data was established, including D&B’s Credit Chamber. Thus, the new law provides a more comprehensive view for credit providers ,who receive extensive data on the borrowers debit behavior (including positive data, alongside with the negative data that was collected before the new law came into force), in order to make credit available to the public.
Previously, in early 2017, “The Law for Increasing Competition and Reducing Concentration in the Israeli Banking Market” came into force – in this framework, the credit card companies (Isracard and Leumi Card) were separated from Israel’s largest banks (HaPoalim and Leumi, respectively) in order to generate competition between the credit companies and the banks, particularly in their households and SME segments (before this reform, the credit card companies weren’t widely involved in the SME loans segment, inter alia, due to restraint from the banking system that held them), and regulatory barriers were reduced, enabling an increase in the market share of non-bank entities. In continuance with this trend, the Capital Markets Authority published a directive in September 2019, which enables a financial institution that joins a non-bank credit provider of provided more credit, up to a maximum on NIS 5 million, comparing their condition to that of a financial institute that joins a bank (before the directive, non-banks were limited to up to NIS 1 million), in order to encourage financial institute to join also non-bank players and jointly extend credit to SMEs.
A Stabilization in the Granted Credit Days (Collection Period) in the Economy
In 2018-2019 there has been a stabilization in the granted payment ethics in the economy, corresponding to an initial improvement in the availability of credit, with average credit days averaging around 93 days. This followed an increase in the previous years, mainly from low access of businesses to finance at the time.
Nevertheless, there are still several industries where its hard to receive credit, including the Real Estate and Infrastructures, Fashion, and Furniture industries, and others, while traditionally also small businesses which constitute the majority of the economy, also had a hard time getting credit due to a lack of sufficient access to finance sources, however, as aforementioned, this difficulty was somewhat alleviated recently.
We can assume that further encouragement of credit extension and making it more available for borrowers, alongside with lower industry concentration in the credit market, would have a positive effect on Israel’s ranking in this sub-index in the future.
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