Canada's Condominium Magazine

World Bank says Canada a good place to start a business, but why so difficult to get electricity?

Canada is a good place to start a business, but it has slipped in the past five years. Of 189 countries ranked by the World Bank for their ease of doing business, Canada placed fourteenth for 2016. Five years ago Canada placed seventh, in the elite “top ten” group. While the country ranks high overall in most of the eleven categories, one of them makes us look distinctly third world.

The World Bank analysis, Doing Business: Measuring Regulatory Quality and Efficiency, examines each country’s regulatory environment to determine how easy it is to start and run a business there. It uses eleven indicators, ranging from how many permits are needed to start a business, to dealing with construction permits in order to build a warehouse, to getting business premises connected to the local electric grid.

It does not measure the larger, more complex issues of government policy, macroeconomic stability, quality of life, social benefits deriving from taxation and so on. The focus of Doing Business is intentionally narrow, says the World Bank, providing only a starting point for discussion, particularly in those countries where much improvement is needed. The indicators are standardized so that comparisons between one country and another will be meaningful.

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Canada’s best ranking comes in the indicator set, starting a business, where the country placed third. Rankings are also high for protecting minority investors, getting credit, and paying taxes. The two areas in which Canada did least well—downright poorly in one case—are dealing with construction permits and getting electricity.

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Building permits, getting electricity Canada’s two biggest weaknesses

In Ontario, the residential building industry has long complained that obtaining building permits is a lengthy and complex process, especially in the GTA. As noted, the Doing Business indicators are for comparison purposes, not specific guidelines.  However, the building permits category seems to show that builders in Canada may have a legitimate concern.

The model used for getting permits is the construction of a new warehouse in Toronto, with a value of $2,737,006. What procedures, time, and costs are associated with building such a warehouse, and what quality control and safety mechanisms are built into the construction permitting system? The simple answer is that a company would need to complete twelve separate procedures, taking a total of 249 days at a cost of approximately 1.3 per cent of the value of the building.

To build a comparable warehouse in the United States, which ranks twenty places higher than Canada in this category, the number of procedures is greater, about fifteen, but the time needed is less than one-third taken in Canada: 80.6 days. The UK also scored significantly higher than Canada in this category. A builder in England would need to complete just nine procedures, taking 105 days, at a slightly lower cost than the Canadian counterpart.

Canada’s rank in this category is fifty-third (of 189).

Worse is the country’s rank in getting electricity. Note that this is not simply a measure of the cost of electricity, though that is included. In fact, if Doing Business is correct, electricity costs less in Toronto (13 cents per kilowatt hour) than in New York or Los Angeles (18 cents per kWh). Getting electricity is a measure of how long it takes for a business to submit all the paperwork and deal with suppliers, plus the costs of completing each procedure, the time it takes to connect the service, and the reliability of the service once installed.

Again, a warehouse in Toronto is used as the model. The number of procedures required comes in at seven, the time at 137 days, and the cost, as a percentage of the country’s income per capita, a staggering 126.1 per cent. In New York City or Los Angeles, getting electricity for that same warehouse would entail 4.8 procedures, 89.6 days, and a much, much lower cost of 24.6 per cent. In the UK, the results are almost identical: 4 procedures, 79 days, 26.7 per cent cost.

Canada ranks 105th of the 189 countries in this category with an overall score of 63.76. Germany, in third place, has a score of 98.78. It is impossible to see this result without wondering why it is so.

While Doing Business does not comment directly on individual outcomes, except in a general way to illustrate a point, it does say that regulatory quality and efficiency of implementation go together and reinforce each other in a virtuous cycle. Few countries have high-quality regulation and poor implementation, but there are some. Is Canada perhaps one of these, at least in the electricity department?

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