Doing Business: Rankings and beyond

Over the past 25 years, Bangladesh has achieved and maintained an impressive growth rate. This remarkable success has transformed Bangladesh into a success story as investments in economic reforms, infrastructure and social development have made the country a successful development model. Between 1991 to 2000, Bangladesh not only witnessed substantial poverty reduction from 58 per cent to 31 per cent and rise in per capita income, but also experienced overall growth in gross domestic product (GDP) on purchasing power parity (PPP), which nearly tripled (+190 per cent) to US$497 billion between 2000-2014.
More remarkably, the economy has also undergone important structural shifts from agricultural-based economy to an industrial sector-based one, which fostered more growth and employment.  As a result, the share of manufacturing GDP has risen from 13 per cent in 1981 to 17 per cent in 2015; and industry's contribution rose from 1 percentage point in the 1980s to 2.7 percentage points in 2015 while trade as a proportion of GDP rose from 18 per cent in 1985 to 45 per cent in 2014.
Building on this impressive growth record, Bangladesh aspires to be a middle-income country by 2021. Bangladesh's policymakers also realise the need for a policy agenda that can help the private sector absorb about 2 million youth entering the labour market every year. Thus, in order to achieve middle-income status by 2021, Bangladesh needs to significantly strengthen its investment competitiveness to increase private investment in productive sectors and to diversify its export basket.
Improving the overall investment climate will be critical to catalyse the investment required for achieving 7-8 per cent sustained growth.Private investment, the most critical growth driver, will need to increase to at least 27 per cent of the GDP, and the gross domestic investment (GDI) rate to at least 34 per cent of the GDP.  All these require Bangladesh to create a business environment that can support its efforts to reach middle-income status by the desired timeline.
While Bangladesh has already undertaken several reforms in areas such as business registration and in taxation, there remains ample improvement opportunity to further strengthen its policies and regulatory framework for businesses. According to the 2017 Doing Business (DB) report, Bangladesh's overall performance on the ease of doing business compared less favorably to the average for South Asian economies, and in some cases it is among the lowest ranked countries in the world based on some of the dimensions covered in the DB report. As per the 2017 report, Bangladesh's overall rank is 176th out of 190 countries. For instance, starting a business for entrepreneurs in Dhaka and Chittagong must go through 9 procedures, which takes 19.5 days and cost 13.8 per cent of Bangladesh's income per capita.  
As it currently stands, Bangladesh lags behind the regional average in almost all of the 11 indicators covered in the DB ranking including--starting a business, dealing with construction permits, getting electricity, enforcing contracts, trading across borders, and getting credit etc. The Doing Business ranking presents a strong opportunity for the government to shed light on how easy or difficult it is for entrepreneurs to open and run a business, including small or medium-sized firms, when complying with relevant regulations. By analysing the qualitative and quantitative indicators presented on existing business regulations, Bangladesh's policy- makers can try to improve the regulatory environment for businesses by comparing with business environment in other economies.  
Furthermore, the DB offers policymakers a benchmarking tool to stimulate policy debate by exposing potential key challenges as well as by identifying good practices and lessons learnt from other comparable economies. For example, over the past decade, policymakers from increasing number of developing countries have advanced their business environment and competitiveness through undertaking targeted reform agendas. More than 40 economies globally have established units or platforms dedicated to develop reform action plans using DB indicators as key reference to not only identify constraints but to also address regulatory issues.
Economies such as Malaysia, Colombia, Rwanda and more recently India to name a few have taken broader policy actions using DB indicators to improve their business environment through increasing regulatory efficiency.  More recently between 2015 to 2016, over 137 economies have implemented 283 reforms of which 75 per cent of regulatory reform initiatives were undertaken by developing countries.
Although Bangladesh's ranking moved up two positions from 178 to 176 in the World Bank's ease of doing business ranking, a solid regulatory framework is still necessary to support the government's targets around investment, export diversification, creation of more and better jobs. More importantly as Bangladesh intends to move toward higher value-added manufacturing as per the country's 7th five-year plan, investors will require simple and clear government regulations both de jure and de facto in order for them to be encouraged to enter into new activities and new sectors.
The national development plan aims to attain foreign direct investment of US$9 billion, and such FDI will be critical for Bangladesh's effort to develop new export sectors beyond RMG. And DB reform initiatives will be an important global benchmark that will give strong signals to foreign investors that Bangladesh stands ready to welcome and facilitate growth of the private sector.
The government's recent initiative to improve Bangladesh's DB ranking to that of double digit by 2021 is a timely and critically important step.  Achieving such an ambitious yet necessary target however requires developing a comprehensive strategy for broader improvements that span across the areas measured by the DB report and ultimately improve government and private sector's interactions through the business cycle. Against this backdrop, the Bangladesh Investment Development Authority's (BIDA) recent reform efforts, under the auspices of the Prime Minister's Office (PMO), have contributed to identifying priority reform areas along with concrete and measurable action items-- through conducting a series of diagnostic studies and developing a comprehensive recommendation report. Such recommendations will help modernise Bangladesh's legal and regulatory framework in the area of business regulations measured by the Doing Business report.
Furthermore, consultations with implementing agencies and private sector representatives on key findings of the report can be a crucial aspect for any reform process to be impactful.
However, for legal and regulatory reformprogram to be successful, the government must recognise that setting inter-ministerial coordination and defining specific roles and functions will be vital to achieve the desired target. Hence, it is imperative that BIDA along with the support of the PMO issue directives to form indicator specific technical taskforce in order to identify implementation challenges, constraints and technical gaps, while ensuring recommended reforms are implemented by relevant ministries within an appropriate timeframe to reflect the DB rankings.
The Doing Business should be perceived by the government as more than just a benchmarking tool that covers a set of objective indicators primarily focused on the key impacts of laws, regulations and enforcement on the ease of doing business for firms. Many governments have reaped wider economic benefits by using DB as a key reference to initiate broader policy reforms; the Bangladesh government, along with BIDA as the lead agency for investment and private sector growth, should use DB to not only stimulate policy debate with key stakeholders and development partners but to pursue in setting up a strategic plan with short and medium term goals in order to identify constraints as well as implement key reforms.
In addition, it is also vital to keep in mind that undertaking DB reform initiatives must have inter-agency coordination as well as participation of stakeholders from the private sector to bring real differences to businesses. The role of private sector is particularly of utmost importance to identify and address regulatory constraints that hinder the overall business growth in Bangladesh. More importantly, establishing formal communications can bring together relevant stakeholders and add necessary ownership in the overall ease of doing business reforms.
Given the expectations that DB reforms will lead to improvements in ranking for Bangladesh, it is also important for the government to place its focus on key reforms to improve investment climate instead of exclusively focusing on improving rankings. This latest initiative is expected to generate improvement in DB rankings for Bangladesh but the utmost priority should be placed on creating a business environment that is more conducive to private sector development and economic growth.
Zubair Nabil Masood is Investment Climate Reform Consultant and M. Masrur Reaz is Senior Economist,
 Trade and Competitiveness, World Bank Group.  
tferoze@ifc.org