Doing Business 2014: Nepal ranked 105 out of 189 countries

In its latest Doing Business 2014: Understanding Regulations for Small and Medium-Size Enterprises, the IFC has ranked Singapore as the top economy in terms of ease of doing business. The other top ranked economies are  Hong Kong SAR, China; New Zealand; the United States; Denmark; Malaysia; the Republic of Korea; Georgia; Norway; and the United Kingdom.

The report ranks economies based on performance in ten indicators: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and resolving insolvency. This year’s report data cover regulations measured from June 2011 through May 2012.

Ukraine was the global top improver in 2013. The other economies that have made the most progress in several areas of regulation last year were Rwanda, the Russian Federation, the Philippines, Kosovo, Djibouti, Côte d’Ivoire, Burundi, the former Yugoslav Republic of Macedonia, and Guatemala

South Asia

In South Asia, Sri Lanka made the most progress and was ranked 85 out of 189 economies, followed by Maldives (95), Nepal (105), Pakistan (110), Bangladesh (130), India (134), Bhutan (141), and Afghanistan (164). 

Rankings could go up or down depending on progress in business regulatory environment, progress by other countries (based on data revisions and methodology) and addition of new countries in the ranking (this year Libya, Myanmar, San Marino, and South Sudan were added).

The data for all sets of indicators in Doing Business 2014 are for June 2013 except for paying taxes data that refer to January–December 2012.

Nepal

In terms of ease of doing business, Nepal ranked 105 out of 189 countries. In 2013, Nepal ranked 103 out of 185 countries. Between DB2014 and DB2013, Nepal initiated one reform in starting a business, which helped increase its ranking 6 positions in that specific indicator. Specifically, Nepal reduced the administrative processing time at the company registrar and established a data link between agencies involved in the incorporation process. However, Nepal’s ranking dropped in all other indicators (except protecting investors, on which there was no change in ranking). It appears more progress made by other economies dropped ranking of Nepal by 2 positions below last year’s ranking. Here is a blog post based on DB2013.

• In South Asia region, Nepal has the best ranking (24) in registering property. It requires 3 procedures, 5 days and 4.9% of property value to register a property in Nepal.  The regional average is 6 procedures, 99.4 days (250 days in Afghanistan), and 7.2% of property value. 
• In terms of documents to export, Nepal has the worst performance in the region, requiring 11 documents against the regional average of 8. Sri Lanka has the best performance with just 5 documents required for exporting a container. 
• In terms of number of procedures required to enforce contracts, Nepal has best performance in the region with 39 required procedures as against 43 for regional average.
• In terms of time taken to resolve insolvency, Nepal has the worst performance in the region. While it takes 5 years to resolve insolvency in Nepal, the regional average is 3 year. Furthermore, recovery rate is also the lowest in Nepal (24.5 cents on the dollar) compared 29.1 for the region (50.6 for Maldives).

Doing Business 2014: Nepal
DB rank 2014	105	out of 189 countries
DB rank 2013	103	out of 185 countries
Topic ranking (out of 189 countries)
Topics	DB 2014 Rank	DB 2013 Rank	Change in Rank
Starting a Business	97	103	6
Dealing with Construction Permits	105	97	-8
Getting Electricity	98	99	1
Registering Property	24	22	-2
Getting Credit	55	52	-3
Protecting Investors	80	80	No change
Paying Taxes	126	121	-5
Trading Across Borders	177	173	-4
Enforcing Contracts	139	137	-2
Resolving Insolvency	125	123	-2

Distance from frontier

The report also provides a new measure called ‘distance from frontier’, which benchmarks economies to the frontier in regulatory practice. In other words, it measures the absolute distance to the best performance on each indicator. When compared across years, the distance to frontier measure shows how much the regulatory environment for local entrepreneurs in each economy has changed over time in absolute terms, while the ease of doing business ranking can show only relative change.

An economy’s distance to frontier is indicated on a scale from 0 to 100, where 0 represents the lowest performance and 100 the frontier. For example, a score of 60 in DB 2012 means an economy was 60 percentage points away from the frontier constructed from the best performances across all economies and across time. A higher score in DB 2013 indicates an improvement.

Compared to DB 2013, in DB 2014, in Nepal, there was improvement in starting a business, dealing with construction permits, getting electricity and registering property. Trading across borders worsened. There was no change in other indicators. 

TOPICS	DB 2014 DTF(% points)	DB 2013 DTF(% points)	Improvement in DTF(% points)
Starting a Business	81.52	79.09	2.43
Dealing with Construction Permits	76.89	75.37	1.52
Getting Electricity	74.22	72.82	1.4
Registering Property	84.59	84.43	0.16
Getting Credit	68.75	68.75	No change
Protecting Investors	53.33	53.33	No change
Paying Taxes	64.4	64.4	No change
Trading Across Borders	34.43	35.91	-1.48
Enforcing Contracts	47.3	47.3	No change
Resolving Insolvency	25.95	25.95	No change

Did India’s National Rural Employment Guarantee Scheme Improve Welfare and Reduce Poverty?

Abstract from a recent paper by Deininger and Liu, who show that NREGA contributed to increase in consumption in the short run and and brought net benefits to SCs and STs. Furthermore, it even created productive assets.

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This paper uses a three-round 4,000-household panel from Andhra Pradesh together with administrative data to explore short and medium-term poverty and welfare effects of the National Rural Employment Guarantee Scheme. Triple difference estimates suggest that participants significantly increase consumption (protein and energy intake) in the short run and accumulate more nonfinancial assets in the medium term. Direct benefits exceed program-related transfers and are most pronounced for scheduled castes and tribes and households supplying casual labor. Asset creation via program-induced land improvements is consistent with a medium-term increase in assets by nonparticipants and increases in wage income in excess of program cost.

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More on NREGA here. Here is a recent co-authored research report.

Progress in reducing gender inequality

Nepal has made consistent progress in reducing gender inequality, according to Global Gender Gap Report 2013. However, much more needs to be done in moving up the ranking. This necessitates further improvements in economic participation, education attainment, health and survival and political empowerment.

Below is a chart that shows the rank and score of Nepal in global gender gap index, which provides insights into access to resources and opportunities (note that it does not give insights into the actual levels of the available resources and opportunities).

The index is aggregated based on scores in the following four indicators:

• Economic participation and opportunity – salaries, participation and highly skilled employment
• Educational attainment – access to basic and higher levels of education
• Political empowerment – representation in decision-making structures
• Health and survival – life expectancy and sex ratio

Overall, Nepal ranks 12th in labor force participation; 1st in sex ratio at birth (female/male); 22nd in women in parliament; 115th in estimated earned income (PPP US$); 125th in literacy rate; 126th in enrollment in primary education; and 110 in professional and technical workers.

Potential synergy between tourism industry and export performance

Reis and Varela (full paper here) argue that better tourism industry performance in Nepal could negate some of the costs associated with export market search and reach by providing a “relatively inexpensive platform for cost discovery and acting as a low-cost in-house trade fair”. Interestingly, they find that there is a positive association between tourist inflows from given destinations and their expenditures with future merchandise exports of tourist-related products to those destinations. One clear suggestion is that there greater coordination should be sought between tourism and export promotion activities.

The inflow of tourists reduce the costs of self-discovery associated to exportable products as visiting tourists usually take back samples and indirectly market it in their home country, leading to induced demand for Nepali niche products there. In effect, Nepali tourism entrepreneurs can test demand overseas without incurring much of the usual transaction costs that crops up when merchandise goods are exported. Furthermore, tourist inflows to Nepal itself act as a cost-free promotion of Nepalese niche products just as in trade fairs (where entrepreneurs incur costs).

They find that a 1 percent increase in tourist inflows from a particular country is systematically associated with a 0.5 increase in exports of traditional goods to that particular country one year later, on average, controlling for world demand for the product and product-and year-specific factors.

Excerpts from the paper:

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Overall, results strongly suggest that the quantity of tourist inflows are associated with exports of tourist-related products to the tourists’ home countries in the year after their visit to Nepal. This confirms spillover effects from tourism into exports of niche or country-specific goods. Consistently with this hypothesis, the quantity of tourists is not associated with exports of non-tourist-related products in the year after their visit. The spillovers are significant statistically and economically; indeed, their magnitude is sizable. The observed average increase in the number of tourists of about 5 percent per year is systematically associated with, all else being equal, higher exports of tourist-related products by about 2.85 percent per year, taking as a reference the results from the most demanding specification.

How effective are awareness campaigns?

Ravallion, van de Walle, Dutta and Murgai looked at the impact of awareness generation schemes for employment guarantee scheme in Bihar and found that there was no employment gains on average. But, it did show gains in knowledge and relatively favorable positive perceptions about the impact of the scheme.

Abstract from the paper:

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Public knowledge about India's ambitious Employment Guarantee Scheme is low in one of India's poorest states, Bihar, where participation is also unusually low. Is the solution simply to tell people their rights? Or does their lack of knowledge reflect deeper problems of poor people's agency and an unresponsive supply side? This paper reports on an information campaign that was designed and implemented in the form of an entertaining movie to inform people of their rights under the scheme. In randomly-assigned villages, the movie brought significant gains in knowledge and more positive perceptions about the impact of the scheme. But objectively measured employment showed no gain on average, suggesting that the movie created a "groupthink," changing social perceptions about the scheme but not individual efficacy in accessing it. The paper concludes that awareness generation needs to go hand-in-hand with supply-side changes.

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State of hunger in Nepal is improving (Global Hunger Index 2013)

IFPRI has published the latest update on Global Hunger Index (GHI), which shows that hunger in Nepal has consistently declined since 1990. The latest GHI score of 17.3 corresponds to 2008-2012 period. It is the second lowest score in South Asia. Sri Lanka has a GHI score of 15.6. In 2005 (data covering 2003-2007), Nepal had a score of 22.3.

In GHI 2012 (data covering 2005-2010), Nepal had a score 20.3, ranking 60 out of 79 countries. In GHI 2013, Nepal ranked 49 out of 78 countries.

2013 Global Hunger Index						Rank
Higher GHI score indicates more hunger	1990	1995	2000	2005	2013	2012	2013
	(with data from 1988-92)	(with data from 1993-97)	(with data from 1998-2002)	(with data from 2003-2007)	(with data from 2008-12)
Bangladesh	36.7	35.1	24.0	20.2	19.4	68	58
India	32.6	27.1	24.8	24.0	21.3	65	63
Nepal	28.0	27.3	25.3	22.3	17.3	60	49
Pakistan	25.9	22.8	21.6	21.2	19.3	57	57
Sri Lanka	22.3	20.7	17.8	16.9	15.6	37	43

The GHI ranks countries on a 100-point scale in which zero is the best score (no hunger) and 100 the worst. This year's GHI reflects data over 2008-2012 period. Hunger level is categorized as follows:

• <= 4.9 is low
• 5.0-9.9 is moderate
• 10.0-19.9 is serious [Nepal falls in this category]
• 20.0-29.9 is alarming
• >= 30.0 is extremely alarming

In order to identify hunger levels and hotspots, the GHI scores countries based on three equally weighted indicators: the proportion of people who are undernourished, the proportion of children under five who are underweight, and the child mortality rate.

In Nepal, the largest contribution to the reduction in hunger score between 2005 and 2013 came from the progress in reducing the prevalence of underweight in children under five years (down from 38.8% in 2005 to 29.1% in 2013).

Excerpts from the report:

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Across regions and countries, GHI scores vary considerably. South Asia and Africa south of the Sahara are home to the highest GHI scores. South Asia significantly lowered its GHI score between 1990 and 1995, mainly thanks to a large decline in underweight in children, but was not able to maintain its fast progress. Social inequality and the low nutritional, educational, and social status of women continue to contribute to the high prevalence of underweight in children under five.

[…]It is not surprising that many of the countries with “alarming” or “extremely alarming” scores have not been among the most stable. Higher GHI scores tend to be typical of countries that experience social or political unrest or are perennially exposed to shocks such as floods and droughts. Natural and manmade disasters can directly affect the food and nutrition security of people and communities that are particularly vulnerable or lacking resilience. By extension, a critical part of building resilience is ensuring food and nutrition security; and conversely, efforts to build food and nutrition security must be designed with a resilience lens. Poor people have long been vulnerable to “hunger seasons,” droughts, and other natural and manmade disasters. In recent years, this vulnerability has been exacerbated by food and financial crises and large-scale humanitarian crises such as the recurring droughts in the Sahel and the Horn of Africa. These short-term shocks have long-term consequences.

Policymakers and practitioners across the development and relief communities now recognize the need to build the resilience of vulnerable populations. More resilience will help them climb out of poverty, remain out of poverty, or avoid slipping into it in the first place. Conceptually, resilience has been expanded to include the capacity not only to absorb mild shocks, but also to learn from and adapt to moderate shocks and to transform economic, social, and ecological structures in response to severe shocks.

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High housing prices in Kathmandu (most can’t afford)

A new study, as reported in The Kathmandu Post, shows that the average price (in Kathmandu, Lalitpur and Bhaktapur) of a housing unit is Rs 12.3 million and an apartment unit Rs 9.2 million.

This is beyond the reach of most of the Nepalese people. The existing demand and price is likely fueled by easy bank credits to developers and prospective buyers. The prices are unsustainable and a further downward correction is warranted to ensure that the prices set during the ‘bubble’ time are not persistently sticky at a high level even during the slowdown in this particular sector. Hopes of rebounding of the real estate and housing prices, which are still high even after about 30% reduction from its peak level around 2010, are not reasonable as this point of time. A majority of Nepalese still cannot afford housing and apartment units prices beyond their lifetime income.

The housing and apartment markets appear to have plateaued as (i) NRB has imposed a 25% cap on lending to real estate and housing sectors; and (ii) the number of customers that the BFIs thought creditworthy (at least in the books!) have pretty much maxed out (unless they broaden their horizon and come up with innovative, affordable stuffs).  

Excerpts from the news piece:

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• 82 percent of housing and 72 percent of apartment projects sold had price range of Rs 5-10 million.
• Of the 858 housing units with a price value between Rs 5-10 million, 702 were sold. Likewise, 829 out of the 1,147 apartment units in the same price category were also sold.
• A higher demand for low end, ready to move in and instant ownership transferable units, the report entitled, ‘Real Estate Market Outlook 2013’, states.
• The average price for housing units stands at Rs 12.3 million, while the price of an apartment unit is Rs 9.2 million. A total 3,708 units of housing and apartments projects, out of 6,282, have so far been sold. This means 41 percent of units are yet to be sold.
• Even between the housing and apartment projects, there is a higher demand for housing units. The study showed that 76 percent of housing projects have already been sold, while only 51 percent of apartment projects have been sold as of July 2013.
• There are a total of 1975 housing units and 4307 apartment units in the valley.
• The real estate sector has recorded a total average investment value worth Rs 64.4 billion, including Rs 24.25 billion in housing projects and Rs 39.75 billion in apartment projects.
• The total investment value in housing projects is 37 percent, while 63 percent is in apartment projects.
• The report has attributed factors such as preference for owner built houses, lack of buyer confidence, change in customer preference and lack of flexible financial plans towards the selling of total units and accomplished projects as major challenges.
• The highest number of housing and apartment projects had been registered and launched in 2007-08, these numbers declined by 52 percent and 50 percent respectively in the next year.

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No blogging for a week more

A short break from blogging. Traveling around India. Blogging may commence from next week.