Perhaps to put a positive spin on it one might say that for the second year in a row the FSM was ranked at the top of countries worldwide on the difficulty of doing business scale in 2011. But the reality is that The World Bank has released its “Doing Business” report on worldwide country rankings on the ease of doing business and once again, the FSM was in the bottom 26 percent.

Apparently, after the rallying battle cries and challenging speeches at the FSM National Economic Symposium in early February held in Chuuk, many of them bemoaning the fact that the FSM was ranked 137th out of 183 countries evaluated by the World Bank,  participants went home and either did precisely nothing, or what they have done hasn’t taken effect quickly enough.  The FSM slipped three places closer to the bottom of the heap and is now ranked at number 140 out of 183 countries.

I am fully aware that I am no expert on these matters.  I can’t pretend to fully understand the ranking system contained in the report’s 97 pages.  I would venture to guess that I am not alone in that regard.  Still I have racked my brain but I’m sorry to say that other than a reform of Pohnpei’s foreign investment laws which haven’t yet taken full effect, and a vague promise of tax reform that has not yet been endorsed by the States I can’t think of much that has been done to make it easier to do business in the FSM.

The authors of the report admit “The Doing Business methodology has limitations. Other areas important to business—such as an economy’s proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders and getting electricity), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions—are not directly studied by Doing Business.”

I would venture to guess that the rankings would substantially differ if those factors were taken into account.  I have my own sneaking suspicion which direction the FSM would move in the rankings if they were but those suspicions are mitigated by the fact that the FSM is a peaceful country and many of the countries evaluated by the World Bank are not.  Certainly, the FSM’s economy will always be affected by its own geographic location but then we’re not alone in that boat.

The Republic of the Marshall Islands has that “proximity to large markets problem,” but they are ranked 106th among the 183 countries ranked.  It’s quite easy to get to Palau from the Philippines and other huge markets, and they have a bustling tourist trade but they are ranked lower than RMI at 116.

The regional ranking average for East Asia and the Pacific was 83.  FSM ranked the lowest amongst its comparator economies in the Pacific.  Tonga fared the best and was ranked at 58.  Samoa was next at 60 followed by the Solomon Islands at 74.  RMI was next followed by Kiribati at 115 and Palau at 116.  FSM was dead last at 140.

Each country was ranked on 10 standards.  FSM fared best on the category of the ease of “Dealing with Construction Permits” where it ranked 19th amongst the 183 countries that were ranked.  At a global position 8th place only RMI fared better in that ranking amongst the Pacific comparator economies.  Kiribati was last at 108.  Tonga was at 32.

The FSM ranked 40th in global rankings on the ease of “Getting Electricity,” because it takes only three procedures and takes only an average of 75 days for a business to get hooked up to electricity and costs only 456.9 percent of income per capita to do so (World Bank says FSM income per capita is $2700).  Tonga was best at 29 followed by Samoa at 32.  Kiribati was last at 159 where it takes six procedures and 75 days but costs 5,162.7 of income per capita to get hooked up to electricity.

At 92, FSM ranked at mid-pack on the ease of “Paying Taxes.”  Kiribati was first amongst economic comparator countries and was globally ranked at 6th place.  Palau was last at 97.

On the rankings of “Trading Across Borders” the FSM stood at 106th place globally, followed by Palau at 124th place.  RMI was first amongst Pacific economic comparator countries at 66th place.

The report says that in the FSM, exporting a standard container of goods requires 5 documents, takes 30 days and costs $1295. Importing the same container of goods requires 6 documents, takes 30 days and costs $1295.

On the “Getting Credit” scale FSM was in 126th place globally, followed by Kiribati at 159 and Palau at next to dead last in the world at 182.  Tonga was first at 78th place.

Since it requires an average of 34 procedures, takes 885 days and costs 66.0% of the value of the claim to enforce a claim in FSM courts FSM was last amongst Pacific comparators at 146th globally on the ease of “Enforcing Contracts.”  Tonga was at 53 and RMI was at 63.  Palau was only a few places better than FSM at 144.

FSM was 164th in the world on the rankings of the ease of “Resolving Insolvency.”  According to data collected by Doing Business, resolving insolvency takes 5.3 years on average and costs 38% of the debtor’s estate. The average recovery rate is 3.4 cents on the dollar.  Kiribati was ranked the lowest in the world at 183rd place on that scale.  Palau was first and was ranked at 63rd place.

Apparently regulations and methods to protect investors in the FSM are not very strong.  At 174th the FSM ranked almost at the bottom by that standard and was dead last amongst it Pacific economic comparator countries.  Comparatively, Samoa was globally amongst the top ranked countries with a ranking of 29th place.  RMI was at 155 and Palau was tied with the FSM.

Where FSM and RMI took its hardest hit was in the ease of transferring property.  The two countries were tied at the lowest ranking of any country in the world.  

In my opinion this is one standard that the World Bank would do well to look into changing and is the cause of the greatest perception amongst people of those two countries that the World Bank simply doesn’t understand the issues in the region.  Foreign ownership of land in either country is not allowed like it apparently is in Palau which was globally ranked 20th in the world and Samoa which is ranked 26th.

The FSM and the RMI should not be required to allow foreign ownership of land in order to rank higher on the scale.  

If I didn’t already know how dismally the FSM was ranked on the ease of the enforcement of contracts I would say perhaps land leases should be considered instead of outright transfers.  Still, I would like to see where the FSM would stand amongst the world’s countries with only the other nine categories as a consideration.

But the insufficiency of that one ranking is not enough for the FSM to discount wholesale all of the results of the World Bank “Doing Business” report.  But I hear that all the time from a variety of sources some of whom should (and probably in their deepest and most secret heart of hearts, do) know better.  “The World Bank doesn’t understand how it is in the FSM.”

Does the World Bank understand any better “how it is” in Zimbabwe which according to a global map showing world rankings on the ease of doing business was only a few positions lower than the FSM?  Do they really get the business environment of China or Mongolia which, based just on the above 10 factors, were ranked higher than the FSM?

Perhaps I am naïve but surely the World Bank and the International Finance Corporation can’t misunderstand every country they ranked or is it just the FSM that the World Bank doesn’t understand?

About nine months ago, after the National Economic Symposium I wrote in another KPress Perspective, “Shouldn’t people in the FSM be saying to themselves, “Holy Toledo, brother! We’d better roll up our sleeves and start digging ourselves out!”  Instead of, ‘It’s a faulty report.’  Of course it is! All reports are faulty but most reports have at least some nugget of truth to them.”

This here message is the same message and I have the same opinion, it’s just a year closer to 2023 and that great funeral that Governor Ehsa talked about in his inaugural address is looming large.

To quote myself one more time from the March 2010 article on the same subject, “The status quo just won’t work. It hasn’t worked since 1986 and it’s not going to work between now and 2023.”

Bill Jaynes
Managing Editor