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Lessons From Georgia
Rapid Reforms, Rapid Results
April 9, 2012
Ulaanbaatar, Mongolia
Olin McGill
Trade Facilitation Advisor
Working Documents On Competitiveness And Business Enabling Environment -- Mongolia
Georgia’s “Unprecedented” Rise on Doing Business
Georgia Overview „ Georgia straddles line
between Europe and Asia
„ 69,700 km² of territory
„ Population ‟ 4.4 million
„ Capital ‟ Tbilisi
„ Currency ‟ Lari (1 USD=1.64
GEL)
„ Literacy Rate (UNDP) ‟
99.9%
„ Main sectors of GDP:
‟ Services (60%)
‟ Industry (27%)
‟ Agriculture (10%).
Turkey
Syria
Iraq
Iran
Azerbaijan
Armenia
Georgia
Russia
Kazakhstan
„ Ruthless transactional efficiency:
‟ Each interaction between business and government is an
opportunity for corruption. Eliminate as many as possible
‟ Government should never ask for info it already has
‟ Streamline and automate everything and investment will follow
„ Aggressive incrementalism:
‟ “A poor transitional country needs poor transitional laws.”
‟ Eliminating agencies with no capacity can’t make things worse
‟ Fix what you can as fast as you can:
„ Fix bad practice today
„ Fix bad regulations tomorrow
„ Fix bad laws next week
Georgia’s Theory of Change:
„ 65% increase in nominal GDP per capita (from $1,484 to $2,450)
„ 67.6% increase in nominal GDP (from $6.4 billion to $10.7 billion
„ 121% increase in tax revenues (from 2 billion GEL to 4.4 billion)
„ 31% increase in exports ($866 million to $1.1 billion)
„ 76% increase in imports ($2.5 billion to $4.4 billion)
„ FDI as a percent of GDP increased from 7% in 2005 to 19.8% in
2007, falling to 12.2% in 2008, and 7.1% in 2009
„ Total bank deposits grew 34 % annually, from $535 million to $2.5
billion
„ Private Credit (consumer and business loans) grew 39 %
annually, from $533 million to $3.1 billion
Georgia’s rapid growth 2005-2009:
Corruption-Free Environment
Bribe Tax (bribes as a share of annual sales)
Bribe Frequency (% of firms saying unofficial payments
are frequent)
$744 million
Annual Savings
to Business and
Government
Annual Return on
USAID’s 4-Year
Investment
-- $57 to $1
Efficiency
Generates
Investment:
Lower transit costs increased Georgia’s trade
2006
# Trucks
Days
Saved Cost Savings
Import 42,000 1 $288 $ 12.096 million
Export 17,000 1 $288 $ 4.896 million
Transit 40,000 2 $288 $ 23.040 million
Annual Benefit
2006 $ 39.992 million
2008 +$133.367 million
2006-08 333 percent growth
Where we started:
3-day line to cross border
Source: Doing Business database.
Comparing Mongolia and Georgia Over Time on Trading Across Borders
TAB Indicator DB2006 DB2007 DB2008 DB2009 DB2010 DB2011 DB2012
Rank .. .. .. .. .. 158 159
149 34 54
Documents to
export (number)
8 8 8 8 8 8 8
9 8 8 8 4 4 4
Time to export
(days)
33 33 33 49 46 46 46
54 12 12 12 10 10 10
Cost to export
(US$ per
container)
1,807 1,807 1,807 2,131 2,131 2,131 2,265
1,570 1,305 1,305 1,380 1,270 1,329 1,595
Documents to
import (number)
8 8 8 8 8 8 8
15 7 7 7 4 4 4
Time to import
(days)
33 33 33 49 47 47 47
52 14 14 14 13 13 13
Cost to import
(US$ per
container)
2,274 2,274 2,274 2,274 2,274 2,274 2,400
1,570 1,305 1,305 1,340 1,250 1,316 1,715
What Georgia did: „ Raised salaries of tax and customs officials
„ Zero tolerance for corruption
„ Fixed the stupid things first
„ Moved clearance from border to private customs
warehouses
„ Modernized Customs code
„ Put Customs in charge of all border operations
„ Merged Customs, Tax, Financial Police
„ Introduced risk management:
„ Started “Gold List” ‟ authorized economic operator program
No single window yet!
Risk management: „ 85% green channel, 13% risk management, 2% random
„ Now over 90% green channel for imports and exports
„ Seizures more than doubled over 100% physical inspections
Initial “Gold List” Criteria: „ $6 million annual turnover
„ $1.1 million annual payments of import fees
„ $650,000 bond to guarantee fees on excisable goods
„ $132,000 bond to guarantee fees on non-excise goods
„ “Clean” record for at least one year
„ Now, relaxed criteria cover many more businesses, who can file
declarations online, move goods direct to their own warehouses,
and pay fees within 30 days
Now only 15 minutes at border
Georgian Efficiency Liberated Investment
Reductions in time to trade across borders
„ Import: from 52 days to 13 days = 39 days saved
„ Export: from 54 days to 10 days = 44 days saved
„ 15% = average annual opportunity cost
„ 0.04% = average daily opportunity cost
Annual savings for investments in trade
„ Import: 39 days X 0.04% X $4.4 billion = $68.6 million
„ Export: 44 days X 0.04% X $1.1 billion = $19.4 million
Same investment can fund:
6.75 deals a year at 54 days (365/54)
36.5 deals a year at 10 days (365/10)
What can Mongolia do?
Import
Procedures
Duration
(days)
US$
Cost
Documents
preparation 28 110
Customs clearance
and technical control 4 60
Ports and terminal
handling 2 130
Inland transportation
and handling 13 2,100
Totals 47 2,400
Export
Procedures
Duration
(days)
US$
Cost
Documents
preparation 28 145
Customs clearance
and technical
control
2 60
Ports and terminal
handling 2 130
Inland
transportation and
handling
14 1,930
Totals 46 2,265
Export Documents -- Comparing Mongolia and Best Practice
Economy TAB
Rank
#
Docs # Days
Days
per
Doc
Total
Cost
Cost per
Doc
Bill
of
Lad
ing
Cu
sto
ms
Ex
po
rt
De
cla
rati
on
Co
mm
erc
ial
Invo
ice
Ce
rtif
ica
te o
f
Ori
gin
Insu
ran
ce
Ce
rtif
icate
Packin
g L
ist
Tech
nic
al
Sta
nd
ard
/ H
ealt
h
Ce
rtif
icate
Tra
nsit
Do
cu
men
t
(Ch
ina
Cu
sto
ms
)
Mongolia 159 8 28 3.5 $145 $18.13 X X X X X X X X
Georgia 54 4 4 1.0 $255 $63.75 X X X X
France 24 2 3 1.5 $51 $25.50 X X
Canada 42 3 3 1.0 $225 $75.00 X X X
Estonia 3 3 1 0.3 $200 $66.67 X X X
Japan 16 3 4 1.3 $80 $26.67 X X X
Korea, Rep. 4 3 2 0.7 $50 $16.67 X X X
Panama 11 3 4 1.3 $150 $50.00 X X X
Sweden 8 3 2 0.7 $100 $33.33 X X X
Austria 25 4 2 0.5 $130 $32.50 X X X X
Belgium 36 4 3 0.8 $179 $44.75 X X X X
Czech Rep. 70 4 8 2.0 $105 $26.25 X X X
Import Documents – Comparing Mongolia with Best Practice
Economy TAB
Rank
#
Docs
#
Days
Days
per
Doc
Total
Cost
Cost
per
Doc
Bill
of
Lad
ing
Cu
sto
ms
Im
po
rt
De
cla
rati
on
Co
mm
erc
ial
Invo
ice
Ce
rtif
icate
of
Ori
gin
Insu
ran
ce
Ce
rtif
icate
Packin
g L
ist
Tech
nic
al
Sta
nd
ard
Healt
h C
ert
ific
ate
Tra
nsit
Do
cu
men
t
Ch
ine
se
Cu
sto
ms
Term
inal
Han
dlin
g
Re
ce
ipts
Co
lle
cti
on
Ord
er
Mongolia 159 8 28 3.5 110 $13.75 X X X X X X X X
Georgia 54 4 8 2.0 255 $63.75 X X X X
France 24 2 5 2.5 101 $50.50 X X
Denmark 7 3 2 0.7 203 $67.67 X X X
Korea, Rep. 4 3 2 0.7 65 $21.67 X X X
Sweden 8 3 2 0.7 130 $43.33 X X X
Canada 41 4 4 1.0 185 $46.25 X X X X
Estonia 3 4 1 0.3 200 $50.00 X X X X
Hong Kong 2 4 2 0.5 100 $25.00 X X X X
Ireland 21 4 5 1.3 165 $41.25 X X X X
Israel 10 4 4 1.0 120 $30.00 X X X X
Eliminating 5 documents Saves:
Export:
„ 5 docs X $18.13
= $90.65 per shipment
„ $90.65 per shipment
X 64,630 shipments
= $5,858,710/year
Import:
„ 5 docs X $13.75
= $68.75 per shipment
„ $68.75 per shipment
X 200,936 shipments
= $13,814,350/year
Impact of Mongolian efficiency savings
Reduce time to prepare documents by 17.5 days of
„ Import: 47 now ‟ 17.5 days = 29.5 days
„ Export: 46 now ‟ 17.5 days = 28.5 days
„ 15% = average annual opportunity cost
„ 0.04% = average daily opportunity cost
Annual savings for investments in trade
„ Import: 17.5 days X 0.04% X $6.6 billion = $46.2 million
„ Export: 17.5 days X 0.04% X $4.8 billion = $33.7 million
Same investment can fund:
7.8 deals a year at 47 days (365/47)
12.4 deals a year at 29.5 days (365/29.5)
Impact on Doing Business Ranking:
„ Increase from 159 to 117 on “Trading Across
Borders” indicator
„ Increase from 86 to 72 on overall “Ease of Doing
Business” indicator