Unrealistic World Bank Data Hurt African Economies
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Unrealistic World Bank Data Hurt African Economies
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By Aparupa Chakravarti, Director, and Liviya David, Business Development & Research Analyst, Botho Emerging Markets Group
December 10, 2021
Originally published in Nation Africa on December 10, 2021
A popular Kenyan saying goes, ‘Vitu kwa ground ni different’. The Swa-English phrase literally means ‘things on the ground are different’, different from how they are portrayed online or in popular publications. One can apply the same lens to the World Bank’s recent decision to pull their flagship Doing Business report, after an audit revealed that Bank and IMF officials altered report data to benefit China’s and Saudi Arabia’s rankings in 2018 and 2020, respectively. The decision brought about criticism about how realistic data in the Doing Business report actually is: for certain indicators, it measured de jure regulations, rather than de facto enforcement. Indeed, things on the ground are different! Ultimately, the doing away with the Doing Business report begs the question: how should the private sector, governments, and multilateral institutions make business and investment decisions in and about emerging markets, especially those that tend to have data gaps and information asymmetries, like many African economies?
One major implication of this question is the importance of interrogating research beyond surface level. It can be easy to accept information as it is presented, especially when working in markets where country-level data, let alone continental, is relatively scarce. Market data is often locked behind paywalls at a cost of a few thousand dollars. There is, therefore, undoubtedly a need for high quality, publicly available data that can be used to make informed decisions. Even so, with flagship reports like Doing Business that promise to provide us with such information, it is still important to ask, ‘Who is producing this research and to what end?’, ‘Where is the money to publish this report coming from?’, and ‘What competing interests might be at play?’ For instance, criticisms about the politically conservative bias of the index’s indicators came long before the audit: days to get a construction permit may show a certain ease of doing business, but may also portray an anti-regulatory stance that can end up hurting people by bypassing safety and environmental protocols, all under the guise of pursuing ‘development’ in a given country.
To consultants, standardized reports and templates like Doing Business may be helpful for points of comparison, but the best way to understand a place’s business environment is to be - to evoke the Kenyan saying again - kwa ground. A composite indicator on the ease of registering a business shows one part of the picture, yet it fails to capture certain nuances in the background, e.g. why a business may not want to formalize and the hidden costs of formalization. Primary research and physically being in the markets one is interested in, whether for meetings, convenings, or investor roadshows, are both stronger methods to understand such nuances.
The Doing Business report, neatly formatted as a consistent way to benchmark data in 190 countries, holds more weight than its 150 pages alone. Countries attached considerable importance to their rankings, given the high stakes of scoring well on the index. Although we do not have a counterfactual, the push to alter data at the Bank’s highest levels by countries (particularly those who had interest in having their reform efforts recognized) may not have happened had the stakes been lower. Should the report ever be reincarnated by the Bank or another actor, a pure league table system - one where countries each occupy a unique position like 1st, 2nd, and 3rd - ought to be the first element of the report to go, given the (unintended) negative incentives it seems to have created. Instead, a rating system that completely eliminates a composite score and allows users to compare countries along a number of different dimensions, may be a better alternative.
In dynamic contexts where data becomes obsolete relatively quickly, static reports that rely on linear and formulaic methodologies to gather and present complex information are likely to tell an incomplete story, at best. Using the same analytical approaches that are applied in the West in fast-growing markets in the Global South ultimately does not serve decision-makers well, particularly because the baseline quality of publicly available information is different. Consultants and advisors based in emerging economies are at a unique inflection point, where they can push to apply more tailored (and less generic) approaches in addressing various problem sets, drawing on primary data about people’s first-hand experiences living and working in these places. While the goal over time should be to work towards a certain level of global standardization, such that data are published regularly, transparently, and in ways that are easily accessible, that is not the case right now (and often to the detriment of African economies). In the absence of said data, consultants, businesses, and investors should utilize tailored and people- and primary data-based approaches to make informed, nuanced decisions and analyses in and about emerging markets.
By Aparupa Chakravarti, Director, Botho Emerging Markets Group and Liviya David, Business Development & Research Analyst, Botho Emerging Markets Group