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