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How to upgrade Doing Business ranking

| Updated: November 16, 2018 22:39:49


How to upgrade Doing Business ranking

Since 2003, Doing Business Report has become one of the flagship publications of the World Bank Group. According to the definition of the World Bank, Doing Business Report measures the regulations that enhance business activity and those that constrain it. The report covers 190 economies and allows making a comparison among countries/regions in a single year or over the years. The latest, 16th Doing Business Report published in 2019 showed that New Zealand top performed among the economies and the worst performer was Somalia. And Bangladesh ranked 176 out of 190 economies, one place ahead of the last year's ranking-- still the lowest among South Asian countries. Among the South Asian countries, India and Afghanistan performed well in 2019 Doing Business Report.

Methodologically, Doing Business score actually consists of 11 different factors (sometimes only 10 factors are considered in making the report), namely, starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts, labour market regulation and resolving insolvency. Each of the factors has several dimensions when estimating scores for a country. For example, starting a business includes a number of procedures, time (days) required to start a business, cost and minimum capital. Similarly, for other factors, they also have various sub-dimensions and the minimum number of sub-dimensions is three (under enforcing contracts) and the highest is eight (under trading across borders).

Referring to the Doing Business Report 2019, it is desirable to decode what are the constraints that push Bangladesh far below war-torn Afghanistan and other South Asian countries. India ranked 77 and Afghanistan ranked 167 among 190 economies globally. After a careful study, it is understood that Afghanistan has made a lot of reforms in five out of 10 factors (excluding labour market regulation this year), which is reflected in higher ranking. These five reform factors are starting a business, getting credit, protecting minority investors, paying taxes, and resolving insolvency.

India has also made remarkable reform in six factors, namely, starting a business, dealing with construction permit, getting electricity, getting credit, paying taxes and trading across borders. Looking at these two countries also reveals that reform has not taken place uniformly; rather it is diverse in nature. And some economies may focus on particular factors while others are not likely to follow the same. Unfortunately, the report shows that Bangladesh has not taken any reform in either of these 10 factors and/or its sub-factors that are considered to estimate Doing Business Report in 2019. The government may have undertaken some reforms, but these did not effectively affect the overall situation.

According to the report, to start a business in Bangladesh, it requires nine procedures and 19.5 days to complete, meaning on an average over two days for a single procedure that cost 21.2 per cent of income per capita. However, the scenario in India is slightly different, for example, 10 procedures within 16.5 days with a cost of 14.4 per cent of income per capita. This reveals that although the procedures are more in India, still it takes less time and less money to start a business. In other words, each of the procedures in Bangladesh is lengthier and costlier than India. In case of Afghanistan, the procedures to start a business are only 4.5, and require 8.5 days (average two days) costing only 6.4 per cent of income per capita.

As for the second factor--construction permit, it needs 17.9 procedures and 94.8 days to complete in India, while Afghanistan has only 13 procedures that need 199 days to complete. In contrast, construction permits require 15.8 procedures and 273.5 days in Bangladesh, almost three-fold of India's (in terms of days).

The third factor, getting electricity is considered one of the most expensive utility in Bangladesh. While it takes only about 29.5 per cent of income per capita and 55 days to get electricity in India, it takes 150.2 days in Bangladesh. In respect of another factor-- trading across the border, India has managed it efficiently. For example, under time to export category, documentary compliance needs 14.6 hours and 147 hours in India and Bangladesh respectively. That is almost ten-fold for Bangladesh! Similarly, cost to export (documentary compliance) is also almost three times higher in Bangladesh (US$ 225) compared to India (US$ 77.7). Time to import and cost to import also follow almost the similar trend when comparing between India and Bangladesh.

Another distinguishable difference is also observed in 'enforcing contracts' in the 2019 Doing Business Report. While it takes almost similar days both for India (1445) and Bangladesh (1442), however, the cost is more than double in Bangladesh (66.8 per cent of claim value) than India (31.0 per cent of claim value). Similarly, quality of judicial processes index (with higher values indicating better and more efficient judicial processes) also ranked better in India (10.5 out of 18) than Bangladesh (7.5 out of 18).

Without any doubt, it is important to improve upon all these factors to have a better Doing Business rank. The five factors highlighted above require special attention from the policymakers and relevant authorities. Specific policy reforms targeting each of the factors are indeed than an aggregate policy response. As a reference, Bangladesh could look and gain insight from some countries that have excelled in such factors. For example, to excel in starting a business, dealing with construction permit, getting electricity, trading across borders and enforcing contract, countries like New Zealand, Hong Kong China), United Arab Emirates (UAE), France and Singapore could be considered as benchmark countries respectively. These five countries have ranked number 1 in each of the five factors mentioned above.

Dr Aslam Mia is an Assistant Professor (Senior Lecturer) at the School of Management (finance section), University of Science Malaysia (USM), Penang, Malaysia.

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