Ease of doing business: Anything but game changing

When a recent World Bank blog included Bangladesh among the top 20 reforming countries in making it easier to do business, expectations were raised about a significant improvement in Bangladesh's ranking in Doing Business 2020. The results, covering 190 countries, released today, show Bangladesh notching up by eight places – from 176 last year to 168 this year.

This is not surprising because Bangladesh made it to the top 20 with reforms covering the minimum of three areas while countries such as Bahrain and Saudi Arabia were in the same group covering 9; China 8; Kenya and Pakistan 6; Myanmar, Nigeria, Kuwait, Zimbabwe and Togo 5; and Azerbaijan, Kosovo and Uzbekistan 4.

Not surprisingly, the economies with the most notable improvement in Doing Business 2020 are Saudi Arabia, Jordan, Togo, Bahrain, Tajikistan, Pakistan, Kuwait, China, India and Nigeria. Bangladesh's progress on the ranking is noteworthy for sure, particularly considering the recent step-forward step-backward history.

However, the specific reforms underpinning Bangladesh's progress in starting a business, getting credit and getting electricity, which drove the progress, are anything but game changing. These include reduction in official fees, digitisation of some processes and expansion of data base to improve information on credit.

The good news is Bangladesh has been able to correct the ignominious surpassing of its rank by Afghanistan last year, regaining its place ahead of Afghanistan. The bad news is Bangladesh continues to rank well below all other countries in South Asia and East Asia – countries that compete very closely with us for foreign direct investment and export orders in the global market place.

Bangladesh does the worst in enforcing contracts (189), registering property (184), trading across borders (176) and getting electricity (176).

It takes 1,442 days, compared with 1,101 days in South Asia and 120 days in Singapore, to resolve a standardised commercial dispute through a local first-instance court in Dhaka and Chattogram. Such low level of court efficiency is associated with a higher share of the informal sector in the overall economic activity, low investor confidence and with limited bank financing of firms for new investment.

It takes 264 days to register a property, compared with 107.8 days in South Asia and 23.6 days in high income OECD economies. Land registries, together with cadasters that identify the location of a property, are institutions used around the world to map, prove and secure property rights. Research suggests that property owners without secure ownership are unlikely to invest in private enterprises and transfer land to more efficient users.

Border compliance to export takes 168 hours and costs $408, compared respectively with 53.4 hours and $310 in South Asia. Time and cost of documentary compliance for exports are nearly as bad. The picture of imports is very similar. Such time-consuming and costly border management systems and procedures are most unhelpful for providing a trade conducive environment that enables entrepreneurs to expand their opportunities beyond national borders.

Despite recent improvements, it still takes 115 days to get an electricity connection, compared with 86.1 days in South Asia, and costs 1781.1 percent of income per capita, compared with 952.6 percent in South Asia. Electricity supply not only boosts a firm's output but also affects socially critical areas like education and healthcare.

Note that Bangladesh ranked 105th out of 141 countries in the 2019 Global Competitiveness Index. It was also among the bottom 10-30 percent in Control of Corruption, Government Effectiveness, Political Stability and Absence of Violence, Regulatory Quality and the Rule of Law components of the World Governance Indicators 2018.

So what? After all, despite relatively low ranking on all these indices, GDP growth has accelerated in recent years, putting Bangladesh among the fastest growing countries in the world. And this is projected to continue even though the global economy, weighed down by trade related tensions and elevated uncertainty, is expected to grow slower in the next half decades across a wide band of economies.

According to the International Monetary Fund's October 2019 World Economic Outlook, Bangladesh will be among the top 20 new growth engines in five years while Spain, Poland, Canada and Vietnam – all of whom rank well above Bangladesh on these indicators – will drop out of the first 20.

This is puzzling and raises questions about the validity of the assumption of an invariant relationship between country-level indicators and economic performance. Potential other explanations may be that the various indicators (growth, Doing Business, Global Competitiveness, World Governance) may simply be mis-measured, incomplete or too specific or that the underlying relationships may be more complex.

At this point, all that can be said is that there are major discrepancies between Bangladesh's growth story, the doing business story, global competitiveness story (as captured by the Global Competitiveness Index) and the governance story (as captured by the World Governance Indicators).

The author is an economist.