99351 ENTERPRISE SURVEYS WHAT BUSINESSES EXPERIENCE Sweden 2014 ENTERPRISE SURVEYS Country Profile 1 Contents Introduction......................................................................................................................................................... 3 Firms Characteristics ........................................................................................................................................... 4 Workforce............................................................................................................................................................ 5 Firm performance................................................................................................................................................ 5 Physical Infrastructure ........................................................................................................................................ 5 International Trade ............................................................................................................................................. 6 Access to Finance ............................................................................................................................................... 6 Crime and Informality ......................................................................................................................................... 7 Regulations, Permits, and Taxes ......................................................................................................................... 8 Corruption ........................................................................................................................................................... 8 Business Environment Obstacles ........................................................................................................................ 9 Appendix ........................................................................................................................................................... 11 The Country Profiles produced by the Enterprise Analysis Unit of the World Bank Group provide an overview of key business environment indicators in each economy, comparing them to their respective geographic region and group of countries with similar income levels. The same topics are covered for all countries with slight variations of indicators. All indicators are based on the responses of firms. To learn more about the Enterprise Analysis Unit and to obtain Country Profiles for other countries, please visit www.enterprisesurveys.org © 2014 International Bank for Reconstruction and Development / The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank Group with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank Group, its Board of Executive Directors, or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank Group concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Rights and Permissions The material in this work is subject to copyright. Because The World Bank Group encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Group Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Please cite Enterprise Surveys data as follows: Enterprise Surveys www.enterprisesurveys.org The World Bank Group. The Enterprise Surveys team can be contacted at: The World Bank Group 2121 pennsylvania Avenue, NW Washington DC, 20433 USA Tel. (202) 479-3800 2 Economy Overview economies and includes the entire manufacturing sector and most services sectors: retail, wholesale, automotive Sweden repair, hotels and restaurants, transportation, storage, Region: High income: OECD Population in 2014: 9,516,617 communications, construction, and IT. Public utilities, GNI PER CAPITA (US $): 56,210 government services, health care, and financial services Income Group: High income sectors are not included in the sample (Figure 1). The ES interview takes place with top managers and business owners. Introduction The ES are repeated approximately every four years for a The Enterprise Surveys (ES) focus on many aspects of the particular economy (or region). By tracking changes in the business environment. These factors can be business environment, policymakers and researchers can accommodating or constraining for firms and play an look at the effects of policy and regulatory reforms on important role in whether an economy’s private sector firm performance. Repeated surveys aid in studying the will thrive or not. An accommodating business evolution of the business environment and how it affects environment is one that encourages firms to operate the dynamics of the private sector. efficiently. Such conditions strengthen incentives for firms to innovate and to increase productivity — key This document summarizes the results of the Enterprise factors for sustainable development. A more productive Survey for Sweden. Business owners and top managers in private sector, in turn, expands employment and 600 firms were interviewed from January 2014 to contributes taxes necessary for public investment in November 2014. Figure 2 provides a description of the health, education, and other services. Questions sample breakdown across the three survey design contained in the ES aim at covering most of the topics categories: business sector, firm size, and location. mentioned above. The topics include infrastructure, trade, finance, regulations, taxes and business licensing, corruption, crime and informality, access to finance, Figure 1: Sectors of the economy covered by the innovation, labor, and perceptions about obstacles to Enterprise Surveys doing business. Excluded Included The ES are conducted by the World Bank Group and its SECTORS SECTORS Agriculture Manufacturing (all subsectors) partners across all geographic regions and cover small, Fishing Construction medium, and large firms. The size of the firm is Mining Motor vehicles sales and determined by the number of employees: 5 to 19 (small), Public utilities repair 20 to 99 (medium), and 100 or more (large). Firms with Financial intermediation Wholesale less than five employees are ineligible for the survey. Public administration Retail Education, health and social Hotels and restaurants Firms that are 100% state-owned are also ineligible. work Storage, transportation, and Partners for the ES have included the European Bank for communications Reconstruction and Development (EBRD), the European IT Investment Bank (EID), and the UK's Department for ADDITIONAL CRITERIA ADDITIONAL CRITERIA International Development (DFID).  < 5 employees  5+ employees  Informal firms  Formal (registered) firms  100% state-owned firms  Minimum of 1% private The surveys are administered to a representative sample1 ownership of firms in the non-agricultural, formal, private economy. Sector coverage is defined consistently across all 3 Figure 2: Characteristics of firms surveyed Sector Size Location Firms Characteristics In addition to collecting information on the business Figure 4 exhibits the percentage of female participation environment and firm performance, the ES also collect in employment, in top management and in firm information on characteristics of private firms. Figure 3 ownership, compared to the equivalent percentages for shows the distribution of firms in the private sector the region and for economies with similar income levels. according to their age, measured by the number of years Female inclusion in economic activity is necessary for they have been in operation. The effect of the business promoting shared prosperity, one of the twin environment on firm performance may depend on firms’ development goals of the World Bank Group. experience and longevity. Also, older firms and young firms may differ in their ability to successfully navigate the Figure 4: Female participation in employment,top business environment. management and ownership Figure 3: Age distribution of firms (percent of firms) 4 Workforce Firm performance The ES collect workforce information such as the number If an economy’s business environment is supportive and of permanent full-time employees, the number of competitive, resources are often channeled to the most temporary employees, employees by gender, whether productive uses and firms invest to further increase their formal training is offered, and the top manager’s productivity. Using the responses to questions on annual experience working in the firm’s sector. In addition, for sales and the total number of permanent full-time manufacturing firms, the ES also collects the breakdown employees, both in the last fiscal year and three fiscal of the workforce between production and non- years earlier, growth measures can be computed for each production workers and between skilled and unskilled firm. Figure 7 displays the resulting annual growth rate in production workers. Figures 5 and 6 highlight firms’ employment and in real sales. By looking at business investment in the skills and capabilities of their environment measures in conjunction with available workforce. performance measures, policymakers can determine which aspects of the business environment may be Figure 5: Percent of firms offering formal training impeding or enabling the growth of the private sector. Figure 7: Annual employment and sales growth The incidence of training is measured by the percent of firms that offer formal training and the intensity of training is measured by the share of workers receiving training in the manufacturing sector. Figure 6: Within firms offering training, proportion Physical Infrastructure of workers trained* A well-developed physical infrastructure, including roads, electricity, water and telecommunications, is central to competitiveness and growth of an economy. Quality infrastructure efficiently connects firms to markets for inputs, products, and technologies. It reduces the cost of production and enhances the competitiveness of firms in domestic and international markets. The ES capture the dual challenge of providing a strong infrastructure for electricity, water supply and telecomunications in addition to information on the development of institutions that effectively provide and maintain these public services. 5 Figure 8 displays the efficiency of infrastructure services Figure 9: Percentage of exporting and importing firms by quantifying the number of days it takes to obtain an electricity connection. Service delays impose additional costs on firms and may act as barriers to entry and investment Figure 8: Days to obtain an electrical connection Efficient customs procedures enable businesses to directly export and import goods. Figure 10 displays the average number of days to clear customs for exports and imports. Delays in clearing customs for exports and imports create additional costs to the firm, can interrupt production, interfere with sales, and may result in International Trade damaged supplies or merchandise. Participation in international trade allows firms to Figure 10: Average days to clear exports and imports expand, raise standards for efficiency, import materials at through customs lower cost, and aquire updated and better technologies. However, trading also requires that firms deal with customs and trade regulations, and often firms are also required to obtain export and import licenses. The ES quantify the trade activity of firms and collects information on the operational constraints faced when exporting and importing. Figure 9 provides a measure of the intensity of foreign trade in the private sector, captured by percentage of firms’ exporting (either directly or indirectly) and also the percentage of manufacturing firms using inputs or supplies of foreign origin. Access to Finance Well-developed financial markets provide payment services, mobilize deposits, and facilitate funding for the purchase of fixed assets – such as buildings, land, machinery, and equipment – as well as working capital. Efficient financial markets reduce the reliance on internal funds or informal sources such as family and friends by connecting firms that are creditworthy to a broad range of lenders and investors. 6 The ES provide indicators on the sources of firms financing Figure 12: Use of financial services and on the characteristics of their financial transactions. Figure 11 compares the various sources used to finance purchases of fixed assets (investments). Investment purchases can be financed by internal sources, banks, inputs’ supplier credit, or other sources, including non- bank financial institutions or personal networks. Excessive reliance on internal funds may indicate potentially inefficient financial intermediation. Figure 12 displays two indicators of the the use of financial services by private firms: the percentage of firms with a checking or savings account and the percentage of firms with a bank loan. The former indicator measures the use of deposit mobilization services which helps firms to manage their liquidity and payments. The second indicator measures the use of financial services on the credit side. Availability of credit permits funding projects Crime and Informality that otherwise would be constrained by each firm’s limited pool of funds. Firms can become the target of theft, robbery, vandalism, or arson. Protecting themselves against crime imposes costs as firms are forced to divert resources from Figure 11: Sources of financing for purchases of fixed productive uses to cover security costs. Moreover, both assets foreign and domestic investors perceive crime as an indication of social instability, and crime drives up the cost of doing business. Figure 13 displays the direct costs of security incurred by firms as well as their losses due to crime. These resources represent the opportunity cost of crime since they could have been invested in productive activities. Figure 13: Firms’ cost of crime When firms are formally registered, they are required to abide by rules and regulations, which are commonly set by governments. Paying taxes is usually the most tangible 7 consequence of becoming part of the formal private with regulatory compliance. Figure 15 also presents the sector. Some firms try to avoid these conseguences by number of required meetings with tax officials in a year. not registering their business and thereby remaining in the informal sector. A large informal sector may represent Figure 15: Time tax and meetings with tax officials a challenge to competing formal firms as informal firms are able to engage in practices that can given an unfair advantge over formal firms that must comply with the prevailing rules and regulations. Figure 14 provides two measures of the incidence of informality in the private sector. The first indicator is the percentage of firms that indicate that they face competition from unregistered or informal firms. The second indicator is the percentage of currently registered firms that started operations being formally registered. Figure 14: Firms and informality Figure 16 focuses on the efficiency of business licensing and permit services. The indicators measure the time required to obtain an import license, a construction permit, and an operating license. Delays in obtaining licenses can be costly to entrepreneurs as they add uncertainty and additional costs to much needed business transactions. Figure 16: Number of days to obtain permits Regulations, Permits, and Taxes Good economic governance in areas such as regulations, business licensing, and taxation is a fundamental pillar of a favorable business environment. Registered firms pay taxes and are supposed to comply with regulations. Permits and licenses are usually required for business to operate, build a new structure, and to import directly, among other activities. Ideally, these regulations and Complying with regulations is coslty for businesses. permits safeguard the general public’s interest while Excesive or inefficient regulations can discourage private remaining transparent and not imposing heavy burdens sector activity and foreign direct investment. on the private sector. Corruption The ES provide quantitative measures of regulations such as business licensing and taxation. Figure 15 illustrates Corruption by public officials can be a major the “time tax” imposed by regulations, which is the administrative and financial burden on firms. Corruption percentage of time spent by senior management dealing creates an unfavorable business environment by 8 undermining operational efficiency and raising the costs Figure 18: Percentage of firms requested or expected and risks associated with running a private firm. to give gifts or informal payments Inefficient regulations constrain firms’ operations as they present opportunities for soliciting bribes, where firms are required to make “unofficial” payments to public officials to get things done. In many economies bribes are common and quite high and they add to the bureaucratic costs in obtaining required permits and licenses. They can be a serious impediment for firms’ growth and development. Figure 17 provides a composite index of corruption, the bribery incidence, that reflects the percentage of firms experiencing at least one bribe payment request across six different transactions including paying taxes, obtaining permits or licenses, and obtaining utility connections. The ES capture individual transactions where bribes may Business Environment Obstacles be solicted. Figure 18 displays the extent to which firms are requested to pay a bribe in order to receive selected Most indicators in the ES are derived from survey public services. Businesses may be asked to pay bribes questions that ask businesses for their actual experiences when they request a construction permit, while trying to dealing with the business environment. For example, secure a government contract, or during meetings with “How many days did it take to get a permit?” or “How tax officials. These three types of transactions are many hours did the power outage last?”. A small number common instances where opportunities for bribery occur. of survey questions ask business owners or top managers for their subjective opinion regarding the importance of various business environment elements. Figure 17: Bribery Incidence (percent of firms Figure 19 shows the percentage of firms that consider a experiencing at least one bribe payment request) specific business environment obstacle as the most important one. The respondent was asked to choose the biggest obstacle to their business from a list of 15 business environment obstacles. The figure presents the top 10 ranking obstacles compared to the regional averages. Figure 20 displays the top 10 obstacles for small, medium, and large firms. In many economies, the perceptions of managers of large firms are very different from the perceptions of managers of medium and small firms. This is related to the capacity to navigate business environment obstacles: larger firms may have more options to face obstacles but at the same time they are also more visible and more exposed to failures of the business environment. 9 Figure 19: Top ten business environment constraints (percent of firms) Figure 20: Top three business environment constraints by size (percent of firms) 10 Appendix The following tables contain the values of all indicator variables used in the country profile. High Small Medium Large High Sweden income firms firms firms income : OECD Firm Characteristics Age of the establishment (years) 28.3 26.8 29.0 34.0 20.1 18.3 Gender Percent of firms with female participation in ownership 52.5 41.4 63.1 65.0 35.1 36.8 Percent of firms with a female top manager 12.5 11.4 14.5 7.2 14.7 19.2 Proportion of permanent full-time workers that are female (%) 34.5 29.5 39.5 36.0 33.8 38.2 Proportion of permanent full-time production workers that are 14.1 12.6 15.2 16.8 22.4 28.1 female (%)* Proportion of permanent full-time non-production workers that are 37.4 38.7 37.3 31.0 40.3 43.7 female (%)* Workforce Percent of firms offering formal training 70.3 56.6 81.7 92.6 44.5 41.3 Proportion of workers offered formal training (%)* 71.4 63.7 78.6 71.3 57.4 55.1 Years of the top manager's experience working in the firm's sector 23.7 24.7 22.7 23.0 21.7 19.8 Number of permanent full-time workers 39.5 8.6 41.0 244.1 43.6 34.5 Number of temporary workers 5.5 3.5 5.5 21.0 3.7 2.9 Number of permanent production workers* 33.1 6.7 21.2 235.4 37.9 34.1 Number of permanent non-production workers* 17.8 2.7 11.6 132.1 14.5 12.3 Number of permanent skilled production workers* 16.7 5.9 14.7 104.4 26.9 23.2 Number of permanent unskilled production workers* 8.0 0.8 6.6 60.3 8.1 8.7 Proportion of unskilled workers (out of all production workers) (%)* 20.3 11.9 28.3 38.5 20.8 24.7 Performance Real annual sales growth (%) 0.6 -1.3 2.9 -0.5 5.3 5.3 Annual employment growth (%) 1.3 -0.4 3.1 2.2 2.9 4.4 Infrastructure Number of electrical outages in a typical month 0.4 0.9 Losses due to electrical outages (% of annual sales) 0.1 0.2 Days to obtain an electrical connection (upon application) 24.3 16.8 30.2 n.a. 42.8 36.0 Number of water insufficiencies in a typical month* 0.0 0.2 Trade Days to clear direct exports through customs 2.4 2.7 1.9 3.5 5.3 5.3 Percent of firms exporting directly or indirectly (at least 1% of sales) 31.3 29.5 26.6 72.1 35.7 29.7 Days to clear imports from customs* 2.1 2.5 1.7 2.2 5.4 7.1 Percent of firms using material inputs and/or supplies of foreign 83.5 80.9 83.1 100.0 75.5 77.5 origin* Finance Percent of firms with a checking or savings account 97.7 97.3 Percent of firms with a bank loan/line of credit 35.5 34.9 34.6 44.6 50.7 45.9 Proportion of investment financed internally (%) 75.9 71.5 79.2 82.1 66.9 68.7 Proportion of investment financed by banks (%) 12.0 13.0 12.6 3.4 20.3 18.2 Proportion of investment financed by supplier credit (%) 0.9 0.8 1.1 0.3 4.2 4.6 Proportion of investment financed by equity or stock sales (%) 2.0 2.6 1.5 1.6 2.4 3.2 Crime Security costs (% of annual sales) 0.4 0.3 0.4 0.6 0.7 0.8 Losses due to theft and vandalism against the firm (% of annual 0.3 0.2 0.4 0.3 0.3 0.4 sales) Informality Percent of firms competing against unregistered or informal firms 29.7 28.1 34.5 12.5 34.2 46.3 11 High Small Medium Large High Sweden income firms firms firms income : OECD Percent of firms formally registered when they started operations in 97.2 93.9 the country Regulations and Taxes Senior management time spent dealing with the requirements of 4.9 5.1 4.3 7.4 9.7 9.2 government regulation (%) Number of visits or required meetings with tax officials 0.1 0.0 0.2 0.5 0.9 0.9 Days to obtain an import license 11.1 n.a. 12.2 28.0 18.7 16.3 Days to obtain a construction-related permit 128.5 78.4 103.2 394.8 137.1 130.5 Days to obtain an operating license 26.2 9.2 24.2 126.0 49.9 42.9 Corruption Bribery incidence (percent of firms experiencing at least one bribe 1.9 4.6 0.1 0.9 1.7 5.0 payment request) Percent of firms expected to give gifts to get a construction permit 1.7 4.3 0.2 0.0 1.7 7.5 Percent of firms expected to give gifts to secure government 0.0 0.0 0.0 0.0 10.7 10.7 contract Percent of firms expected to give gifts in meetings with tax officials 0.3 0.0 0.0 0.9 0.8 2.8 Biggest Obstacle Access to finance 6.7 9.2 2.8 17.2 11.9 14.0 Access to land 10.5 7.6 14.6 0.5 3.3 2.0 Business licenses and permits 1.2 1.8 0.7 0.0 3.2 2.4 Corruption 0.9 1.8 0.1 0.0 2.7 3.3 Courts 0.1 0.1 0.1 0.0 1.9 1.3 Crime, theft and disorder 8.3 11.9 6.0 0.0 3.0 4.5 Customs and trade regulations 0.4 0.1 0.5 1.4 1.0 3.4 Electricity 0.0 0.0 0.0 0.1 2.7 4.9 Inadequately educated workforce 27.8 26.3 29.3 27.9 13.5 13.6 Labor regulations 17.5 7.1 25.0 36.5 10.0 6.3 Political instability 8.7 6.5 12.0 0.6 8.7 6.4 Practices of the informal sector 7.0 11.1 4.0 0.4 11.1 10.9 Tax administration 0.2 0.0 0.3 0.0 4.8 3.5 Tax rates 6.1 6.5 4.5 14.5 18.3 19.7 Transportation 4.7 10.0 0.1 0.9 4.0 3.7 * These indicators are computed only for the manufacturing sector 1. The sample for each economy is stratified by industry, firm size, and geographic region. The level of detail of the stratification by industry depends on the size of the economy. Stratification by size follows the three levels presented in the text: small, medium, and large. Regional stratification includes the main economic regions in each economy. Through this methodology estimates for the different stratification levels can be calculated on a separate basis while, at the same time, inferences can be made for the non-agricultural private economy as a whole. For more details on the sampling strategy, review the Sampling Note available at www.enterprisesurveys.org. 12