Why nobody noticed Blockchain made the Republic of Georgia world top 10 in Ease of Business
Last month (end October 2017), the coveted World Bank Doing Business report was released. If you do not already know about this report, it is a big deal. Vladimir Putin, for example, uses it as a benchmark of national progress.
When I first opened this year’s release, two things immediately surprised me:
- The Republic of Georgia is the world’s 9th best place to do business.
- Blockchain is never mentioned in the report.
I had a hunch Georgia would do well as they have been a leader in adopting efficient government reforms. I was not expecting this high a degree of success. I was also not expecting the report to leave out the crucial technology that likely propelled them to the front of the back.
How Georgia became one of the easiest places to do business.
Let’s be clear. We are not talking about the Georgia of sweet tea, peaches, and Coca-Cola. This is the Republic of Georgia. A former Soviet state with a GDP per capita of $3,854 last year according to the World Bank . This puts them just ahead of Algeria to be the 102nd wealthiest nation. The top spots on the Ease of Business Index seems to be reserved for OECD nations, suggesting a correlation with wealth. Norway, Singapore, Denmark, and the US are all found in the top 10.
While it may seem Georgia crashed the party its ascend was not a fluke and deserves to be recognized.
Ten years ago, in 2007, Georgia was ranked 37th. While still a respectable number, this put them in a basket with Saudi Arabia, Slovakia, Mexico, and Mongolia. At the time:
Obtaining a license for a typical business activity cost 71% of the nation’s income per capita, took 17 different procedures, averaging 137 days. Imagine spending over two-thirds of your salary and waiting 5 months to open a Frozen Yogurt shop. If you do succeed, it’s not all sprinkles and toppings. You’d have to pay taxes 35 times per year on your iced treats which would have occupied 423 hours of your time. Obviously, you would quickly burn out and call it quits. Luckily, closing your business would take you 3.3 years and you’d be able to recover a whole 28% of your investment.
Let’s fast forward 10 years to present day and that same frozen yogurt entrepreneur is in for a treat. In just two days and two procedures, you’d have your business registered. And having spent less than $60 to get your charter and a low 17% tax rate, you decide to build a brand new location.
However, to build you need land and this is a notorious obstacle in many countries. According to Transparency International’s Corruption Index, 20% of land rights institution users paid bribes for property related services, such as registering a title. The global average for transferring a land title in 2016 was 82 days. It will take our Georgian yogurt entrepreneur a few minutes on a smart phone app and approximately 50 cents to secure the needed land. (Just for fun, that’s about 2.3 million percent faster than the world average.)
A few minutes on a smart phone app and approximately 50 cents to secure a land title.
You guessed it. It’s in the blockchain.
In February 2016, Georgia’s National Agency of Public Registry (NAPR) partnered with Bitfury Group to pilot a blockchain land-titling registry. The resulting private Blockchain tethered to the Bitcoin Blockchain uses a distributed digital timestamp to verify and sign a document containing essential citizen information and proof of ownership.
A NAPR user simply uses a web interface or application to initiate a request. The application’s back-end establishes a smart-contract which is subsequently executed on the private blockchain. The resulting hash is stored on the public bitcoin blockchain, ensuring that the deed is secure, permanent, and easily accessible. It is worth repeating the full process takes seconds and costs pennies.
In addition to convenience and cost, the added level of security eliminates the possibility of manipulation or corruption. Economist Hernando DeSoto, who estimates up to $20 trillion of capital owned by the world poor are non-fungible due to lack of quality institutions, took special interest in the project and acted as an adviser.
Why didn’t the World Bank Report mention blockchain?
I was genuinely surprised I could not find a single mention of blockchain or any similar protocol in the entire report.
The likely explanation is a desire to remain impartial to specific policies and practices. Promoting a technology as hyped as blockchain without a sincere understanding and substantial evidence would be irresponsible and could threaten the agencies reputation. The Harvard Business Review, for instance, rightfully pointed out that expectations should be dampened and that mass adoption could still take decades.
However, the World Bank was wrong to completely forgo mention. Even if mass adoption is still far away, it makes sense to explore and invest now. Government leaders all over the world rely on this report to develop their own improvement trajectory. Georgia has already become a useful case-study of the protocol's immense beneficial impact and deserves to be scrutinized by peers worldwide.
Should institutions start to take notice?
Governments and institutions need to take notice or risk falling behind. A momentum appears to be forming. Honduras and Ghana, for instance, have expressed serious interest in implementing similar technologies. Even advanced nations with functional institutions are taking action. Consultancy Kairos Future has calculated that switching to blockchain could save Swedish tax payers $106 million. As a result, Sweden has initiated pilot projects to begin a transformation of land recording keeping into a private blockchain. Georgia, in the mean time, has expressed interest in pushing other government services into the blockchain entering new territory.
It will be extremely interesting to see how these nations do in next year’s Ease of Business report and if the World Bank will finally recognize the potential, momentum, and impact.
