Two up, two down

At first sight the first news cheered us up somewhat while the second created a dash of despair, cancelling the feel-good effect engendered by the first. The two news items on business environment in the country prepared by the World Economic Forum (WEF) and the World Bank (WB) came in quick succession, leaving not much room to relish the evanescent achievement mentioned by the former. What is more disturbing is that the two pieces of news appear to be contradictory.
According to the first news, Bangladesh has moved two notches up in this year's Global Competitiveness Index, putatively riding on progress in the areas of macro-economic management, health, education and infrastructure. The country has been ranked 107th in 2015-2016, from last year's 109th among 140 countries, according to the WEF annual report on global competitiveness. The country scored 3.8 on a scale of 1 to 7 in 2015-16 while last year the score was 3.7. The upward movement is at a snail's pace, it is apparent and therefore lifts the spirit only mildly. According to one economist we are walking whereas we need to run. The observation captures the minuscule nature of the progress as mentioned in the WEF report. Bangladesh could not make major breakthrough in the global ranking because of lack of adequate reforms in financial, capital and labour markets. It has been pointed out that there are shortcomings and obstacles in the areas of governance and rule of law which are essential for promoting competitiveness. Innovation, a sine qua non for attaining middle income status, has been in short supply. Though the government has given financial incentives through pay hike, administrative reforms have not been initiated. Steps necessary to improve efficiency and effectiveness of public institutions, constitutional and otherwise, have not been taken yet. The implementation capacity of government agencies are lagging behind, hobbling important projects, including infrastructure. Because of lack of significant improvement in governance Bangladesh has at best crawled whereas many countries in the same category have leapfrogged in the competitiveness ranking. For instance, India has moved up to 55th place from last year's 71st and Sri Lanka has improved its position in the ranking by moving to 68th in 2015-16 compared to last year's 73rd position. What is more disconcerting, Nepal and Bhutan are ahead of Bangladesh as they are ranked 100th and 105th respectively. In South Asia, only Pakistan, placed at 126th, has been ranked below Bangladesh.
According to WEF, Bangladesh's weakness stems from fragile institutions, inadequate financial market sophistication and market efficiency. The report points out that to make matters worse negative changes occurred in the areas of health and primary education cancelling out the improvement. Governance is still at a weak state giving rise to growing concern to investors and other stakeholders, the report reveals.
While the tardy progress in competitiveness is a matter of concern, even its authenticity does not appear to be beyond doubt. This is because the competitiveness index is prepared on the basis of persons (companies) interviewed on a selective basis. An executive opinion survey is conducted by WEF with a given sample size. On the basis of a questionnaire the WEF conducted the opinion survey in Bangladesh between February and May this year with the reference period fixed for the months of January to December, 2014. The sample size was 56 with most of the companies interviewed owned by Bangladeshis and based in Dhaka. Had some of the companies been owned by foreign investors and located outside Dhaka even the improvement by two notches in the ranking might not have resulted. What is more important to remember is that being perception-based even the two-thirds of the data coming from opinion survey cannot be entirely reliable. The outcome of the survey may err on the optimistic side because of subjective estimation depicting a somewhat better picture than is the case in reality. The ranking being based on perception the attempt at capturing broad dimensions of governance is most likely flawed and therefore unreliable. This problem is compounded by the fact that the quality of the survey varies from year to year.
According to the second news Bangladesh has slid down by two places in the ranking of countries compiled by the WB in its survey on Ease of Doing Business. This is in contrast to the Competitiveness Index prepared by WEF. Compared to the Competitiveness Index, the ranking of countries on the basis of the Ease of Doing Business Index appears more reliable as it is fact-based and uses objective criteria. Like the Competitiveness Index the Ease of Doing Business also measures the business-friendliness of a country's economic environment. It is prepared by the World Bank using sources and methodologies different from those used in the preparation of Competitiveness Index. But though distinct the two indices are complementary to each other and somewhat overlap. The former focuses on problems faced by locally owned companies while the later highlights those putting up obstacles to foreign financed entities. Both seek to provide an informed assessment of the costs of complying with the existing regulations.
It has already been pointed out that according to the latest report of WB (2015) on ease of doing business Bangladesh has slipped two places in the global ranking. Among 183 countries Bangladesh has been placed at 173rd position. In South Asia Bangladesh ranks the lowest except for Afghanistan. In South Asia it ranks at the bottom in such categories as Registering Property, Enforcing Contracts, Getting Electricity and Obtaining Credit. To add salt to injury, Bhutan has ranked at the top of the table (71). India, Sri Lanka, Vietnam, Indonesia and Cambodia have all improved their position in the ranking for Ease of Doing Business.
Every year the World Bank's Ease of Doing Business is prepared by gathering data in 10 different areas to compare the regulatory environment. These data are then combined into an aggregate index which is an average of the 10 indicators at present. Since the index is prepared based on data it is superior in quality to the Competitiveness Index and as such is more reliable. Of course, the Ease of Doing Business Index has its own limitations but as an assessment of the business environment in a country it reflects the objective reality reasonably well.
Since the two reports, one by the WEF and the other by the WB, focus on the same issue - the state of business environment - their conclusions have to converge. It strains credulity when one report gives positive signals while the other comes off on a negative note. As the Ease of Doing Business prepared by the WB is more reliable (being fact-based) than the Competitiveness Index of WEF (being perception-based) we have to conclude that the improvement in the competitiveness index ranking credited to Bangladesh has to be taken with a grain of salt. Instead of going up by two notches in the ranking Bangladesh may have slipped below compared to last year. By how many notches? Perhaps two or there about to be consistent with the World Bank report which monitors the same subject. To save readers from confusion the two agencies should co-ordinate their surveys as long as the subject of survey remains quintessentially same.
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