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OP-ED: How about creating our own Doing Business indicators?

  • Published at 09:34 pm September 27th, 2021
Underconstruction buildings <strong>Dhaka Tribune/Syed Zakir Hossain</strong>
Dhaka Tribune/Syed Zakir Hossain

Yes, we would not be able to compare ourselves with other countries but there is much that we can do based on our own, absolute measures of how different regulatory interfaces are performing

The World Bank has announced that it is no longer going to publish its annual Doing Business Report based on the Doing Business indicators.

The Doing Business Report, published each year since 2004, was one of the World Bank’s most influential reports in recent years.

Every autumn, people around the world would wait eagerly and, in some cases, with some trepidation, for these reports to come out.

Over time, the reports increasingly attracted the attention of heads of governments who wanted to see their countries do well on the Doing Business rankings.

Such was the importance placed on the rankings that some countries appeared to have gone overboard, exerting some pressure in an attempt to have their scores modified.

It appears that the World Bank’s rather dramatic decision to terminate the report has something to do with such behaviour by governments although some methodological concerns may have also played a part.

For the past decade and a half, governments around the world have initiated regulatory reform programs based on the Doing Business indicators.

For some governments, the main motivation has simply been to improve their scores and ranks. But there are others who genuinely wanted to improve the regulatory environment.

Now that the indicators are being discontinued, what can countries such as Bangladesh do?

I believe that we should consider having our own Doing Business indicators.

Yes, we would not be able to compare ourselves with other countries but there is much that we can do based on our own, absolute measures of how different regulatory interfaces are performing.

Before I elaborate on this, let me clarify a few things.

The Doing Business indicators were not meant to assess all aspects of a country’s investment climate.

The indicators do not talk about market size or supply of skills, for example, and it discusses only some aspects of infrastructure, such as ease of getting an electricity connection.

The focus is on regulations.

This explains why we sometimes see high levels of investment, including from abroad, in countries that have relatively low scores on the Doing Business indicators.

This has raised questions about the relevance of these indicators. This critique is somewhat misplaced.

Countries with a less than stellar regulatory environment can still attract investment if they have other advantages such as natural resources, reasonably good infrastructure, and adequate supply of skilled workers.

At the same time, surveys of businesses the world over have revealed that deficiencies in the regulatory environment can be a major deterrent to investment.

Thus, countries which are otherwise favorably endowed may still be handicapped if their regulatory environment is not up to par.

In other words, these countries might be able to attract more investment if they can improve their regulatory environment.

How this concerns Bangladesh

And for countries such as Bangladesh, which are not well endowed with natural resources, infrastructure, or skilled workers, having a conducive regulatory environment becomes all the more important.

We must recognize that improvements to infrastructure or adding to the pool of skilled workers take time and resources.

By contrast, many far-reaching regulatory reforms can be enacted within short time spans without requiring much resource.

Hence, regulatory reform should be top of the agenda for Bangladesh if it wants to build a truly competitive economy.

This is where indicators become important, if for nothing else but to jolt the government into action.

It is not that the government does not understand the need to improve the regulatory regime - after all businesses are constantly complaining about regulatory hassles and uncertainty.

But it is often slow to act.

Part of this is due to sheer inertia.

Anybody who appreciates the importance of regular exercise for good health, and yet never gets around to jog, walk or lift weights will understand such inertia.

And they will understand why a jolt is needed to make people sit up and act. Indicators provide that jolt.

Afterall, as the famous saying goes, “what gets measured gets done.”

While there are many indicators in circulation, including several that deal with the investment climate or competitiveness, the Doing Business indicators have a particularly valuable feature that can provide immediate guidance to the government on where to act.

Let me explain with the help of one of the Doing Business indicators. It is called “Starting a Business”.

Starting a business

According to the website of the Doing Business indicators (www.doingbusiness.org), this indicator “measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-size limited liability company to start up and formally operate in each economy’s largest business city.”

For Bangladesh, it identifies the following steps in starting a business: a) Verify the uniqueness of the proposed company name on the website of the Registrar of Joint Stock Companies and Firms; b) Register at the Registrar of Joint Stock Companies and Firms; c) Pay all applicable registration fees and duties at a designated bank; d)Make a company seal; e) Obtain a Tax Identification Number; f) Open a Bank Account; g) Obtain a trade license; h) Register for VAT; and i) Receive physical inspection of the business premises by a government agent and after VAT registration.

In other words, according to the Doing Business Indicators, there are 9 procedures involved in starting a business in Bangladesh.

For each step or procedure, estimates are provided for the number of days typically required to complete each step, if all the relevant laws are followed and all documents are in order.

The Doing Business Indicators also provide information on documents required to comply with the relevant regulations as well as on the fees required.

The estimates are provided by relevant professionals, i.e., those who have good knowledge of the specific regulatory interface, such as lawyers, accountants, or other relevant professionals.

In some cases, it may take much longer for some businesses to complete all procedures due to idiosyncratic factors, and sometimes, businesses may get things done much faster due to some privileged treatment.

The Doing Business indicators are supposed to reflect the experience of the median businesses, not such outliers.

Dealing with construction permits

Another useful Doing Business indicator is called “Dealing with Construction Permits”.

Bangladesh does not do well on this indicator.

According to the indicator, it takes 281 days to obtain a construction permit in Dhaka compared to a South Asian average of about 150 days.

The chart shows the complicated journey one needs to undertake to obtain such a permit, involving 16 procedures (some of which can be carried out in parallel) for getting approvals and inspections from a variety of government agencies.

Such detailed information is particularly useful for any government agency that is genuinely interested in reforms to the regulatory regime.

While knowing the total time taken to complete a regulatory interface is useful, what is really useful for designing reform action plans is the breakdown, i.e., the identification of the steps involved, and the time taken to complete each step in the process.

The government can see which steps/procedures are the most problematic and can focus its reform efforts on those.

It may also discover that some procedures that may have been on the books for a long time are really not necessary anymore.

It is such disaggregation of various regulatory processes that distinguishes the Doing Business indicators from many other indicators and makes it a particularly valuable operational tool for any reform-minded government.

The reforms that have been triggered worldwide by the Doing Business indicators have helped eliminate certain procedures and reduce the time taken to complete others.

The same is true of documentary requirements.

Once a list was prepared of the documents required to comply with a regulatory requirement, discussions were often triggered on whether all such documents were really needed or whether some could be eliminated.

It is important to note that improving the score on different Doing Business indicators should not be the main goal of a regulatory reform program.

The Doing Business Indicators, along with other diagnostics exercises such as the Enterprise Surveys carried out by the World Bank for countries, were supposed to trigger as well as underpin debates and discussions on regulatory issues.

The indicators are just what the name suggests, these are meant to indicate where problems may lie.

Once such an indication is provided by a Doing Business indicator, the idea was that governments would probe deeper into that regulatory area, in consultation with businesses, and identify additional issues not necessarily captured by the indicators for that area.

In that way, the regulatory reform program would be able to address the problems most relevant for businesses instead of focusing just on improving the score on a particular indicator.

Sadly, not all countries saw the Doing Business indicators through such a lens. Rather, they got caught up in a game of improving ranks and scores.

Bangladesh should not go that way. Instead, it should use homegrown Doing Business indicators to trigger debates and discussions that could bring meaningful and lasting improvements in the investment climate for all businesses in Bangladesh.

This may also involve adding some indicators to capture regulatory areas currently not covered by the Doing Business indicators, but which may be relevant for Bangladesh.

Regulatory uncertainty is one such topic.

But there may be others too.

The capacity exists for creating our own set of Doing Business indicators.

Over the years, many Bangladeshi professionals have contributed to the measurement of these indicators for Bangladesh.

They are familiar with the methodology.

In recent years, as the Bangladesh government started taking the indicators seriously, a critical mass of officials has emerged within the government who are also familiar with the indicators – what do these mean, how these are constructed, and how these can be used to design regulatory reform programs.

The government can draw upon these resources and, in consultation with businesses and other stakeholders, initiate an ambitious indicator-based reform program. 

Let’s start measuring and getting things done, as we pursue a dynamic and competitive business sector.

 

The author is an economist, previously with an international development agency

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