Uneven local business climates: Six EU countries show gaps in public service delivery and operational efficiency

New data on the subnational business climate in six EU member states reveal that each of the 40 measured cities has room for improvement, particularly in de facto compliance with business regulatory processes.

The World Bank’s Subnational Business Ready in the EU series 2024 provides a rigorous and comprehensive examination of the business environments across 40 cities in six EU Member States: Bulgaria, Croatia, Hungary, Portugal, Romania, and the Slovak Republic. This initiative is not solely analytical—it is fundamentally transformative, aiming to catalyze policy reforms and invigorate the private sector by leveraging diverse regional strengths within the EU.

The study focuses on five topics crucial to a firm’s lifecycle and market participation: Business Entry, Business Location, Utility Services, Dispute Resolution, and Business Insolvency. Based on the B-READY methodology, each report assesses three pillars of the business environment: the regulatory framework, the provision of related public services, and their operational efficiency in practice.

Subnational B-READY studies apply the Global Business Ready methodology to assess business climates on a regional level within economies.
 

Key findings of the subnational business climates in six EU Member States

The reports highlight notable differences in subnational business climates regarding the delivery of public services, which primarily refer to the capabilities of public infrastructure to support various business activities. Similarly, the analysis underscores significant variations in operational efficiency, which measures the time and cost incurred by businesses when interacting with relevant public agencies. Additionally, each of the 40 measured cities has room for improvement.
 

Uneven provision of public services

While all countries have relatively well-established regulatory frameworks for land administration systems and property transfer standards, they face challenges with land dispute mechanisms, as no economy offers out-of-court compensation for losses due to erroneous information from the land registry. Moreover, cities in all six countries lack either the availability or reliability of digital services for building and environmental permitting, with Bulgaria, Romania, Croatia, and parts of Portugal scoring zero in this area.

Regarding utility services, although all countries have regulations governing the environmental sustainability of wastewater treatment, not all cities have established clear rules for wastewater reuse. Except for Slovakia, none of the countries ensure transparency in tariffs and tariff settings for internet provision. Additionally, all measured cities in Romania and Slovakia score zero on the availability of coordination mechanisms for excavation permits related to utility services.

In the realm of legal matters, none of the countries have statistics available on the number of cases resolved through mediation. Although all countries provide public access to in-person hearings, none offer public access to remote hearings in court litigations. Additionally, no country publishes data on the performance of courts and enforcement agents, including statistics on clearance rates. Hungary, Bulgaria, and Croatia score zero in out-of-court restructuring mechanisms. Furthermore, all countries except Romania score zero for exceptions and relief to the automatic stay of proceedings during liquidation and reorganization.

Interestingly, richer and larger cities tend to have better quality public services in the measured business regulatory areas (see Figure 1). This could be attributed to the fact that bigger cities with higher incomes face stronger demand for public services from firms of all sizes and have the necessary resources to invest in service digitalization and automation.
 

Figure 1: Richer and larger cities tend to provide better public services.

^{Source: Subnational Business Ready 2024}

Huge gap in operational efficiency

The report data indicate that the majority of variability in the regional business climate is driven by differences in operational efficiency, which assesses the time and cost incurred by businesses when interacting with relevant public agencies (Figure 2).
 

Figure 2: Within-country score variation is largely driven by the differences in operational efficiency

^{Source: Subnational Business Ready 2024
Note: the there is little to no variability on Pillar I (Regulatory Framework); in Slovak Republic variability on public service delivery is also minimal.}

In Business Location, none of the cities achieve the maximum score in the time required to obtain a building permit. For the efficiency measure of time to obtain a water connection, 21 cities obtain less than 10% of the maximum score. The low scores can be attributed, in part, to the higher time required to obtain permits in larger cities. Within the topic of Business Location, cities perform worse in the cost to transfer a property than in obtaining a building permit or environmental clearance for construction.

In Croatia, the time required for the electricity-connection process varies across cities primarily due to the waiting periods for receiving an excavation permit from the municipality and the completion of external works. Obtaining a new connection is fastest in Osijek (83 days) and slowest in Split (99 days). In the area of Utility Services, Zagreb’s score is significantly lower than that of the other cities as the water-connection process takes longer—95 days, compared to 31 days in Osijek and 37 days in Rijeka.

The example of Bulgaria shows that within the country, the cost of obtaining building-related permits varies from 32% of income per capita in Pleven to 141% in Sofia. Differences in waiting times and costs across cities are largely driven by municipal permits. For Environmental Permitting, the time to obtain an Environmental Impact Assessment varies from 44 days in Pleven to twice as long in Sofia.

In the Dispute Resolution topic, there is intra-country variability in the efficiency of court processes in litigation, with the largest city generally requiring the most time. In all six countries, the capital city is not the most efficient in court litigations. Furthermore, cities score better on the efficiency of court proceedings compared to arbitration. The performance is higher in both time and cost for domestic court proceedings, owing to better established systems and processes.
 

Room for Improvement

Another key takeaway is that every measured city has room for improvement in the assessed areas (Figure 3). Cities in Romania have the most room for improvement in the areas of Business Insolvency, Dispute Resolution, and Utility Services. Portugal’s cities show the weakest performance in Business Location. Hungarian cities could benefit from reforms in Utility Services. Bulgaria, Croatia, and the Slovak Republic could all further improve their Dispute Resolution and Business Insolvency processes.
 

Figure 3: there is considerable variation in topic scores across cities

^{Source: Subnational Business Ready 2024}

The six reports indicate where reforms are most needed to reduce regulatory bottlenecks and foster a more cohesive and efficient business environment across regions. Many best practices already exist within the countries and cities can learn from each other by engaging in evidence-based dialogues.

Acknowledgement: The blog has been drafted with analytical support from Mihir Nikhil Madhekar.