Wednesday, October 29, 2014

Doing Business 2015: Nepal ranked second in South Asia (globally, 108 out of 189 economies)

In its latest Doing Business 2015: Going Beyond Efficiency, the WBG has ranked Singapore as the top economy in terms of ease of doing business. The other top ranked economies are New Zealand, Hong Kong SAR (China), Denmark, the Republic of Korea, Norway, the United States, the United Kingdom, Finland, and Australia.

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 data for this year’s report covered regulations measured up to 01 June, 2014.

Tajikistan was the global top improver in 2014. The other economies that have made the most progress in several areas of regulation last year were Benin, Togo, Côte d’Ivoire, Senegal, Trinidad and Tobago, the Democratic Republic of Congo, Azerbaijan, Ireland and the United Arab Emirates.

Doing Business in South Asia

In South Asia, Sri Lanka made the most progress and was ranked 99 out of 189 economies, followed by Nepal (108), the Maldives (116), Bhutan (125), Pakistan (128), India (142), Bangladesh (173) and Afghanistan (183).

The regional average (rank) is 134 in DB2015.

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

This year 7 changes were made: (i) DB ranking is based on distance to frontier scores; (ii) data of 2 cities were taken into consideration for economies with over 100 million population; (iii) methodology was revised for getting credit indicator; (iv) protecting investors indicator was changed to protecting minority investors and its scope expanded; (v) resolving insolvency indicator has been expanded; (vi) calculation of the distance to frontier score for paying taxes indictor was changed; and (vii) employing workers indicator was changed to labor market regulations and scope for this expanded. These tend to affect the overall score and hence the rankings. So, this year’s ranking is comparable to last year’s only (DB 2014 ranking was revised based on DB 2015 methodology). However, the scores for these indicators and sub-indicators may still be safely compared to DBs of previous years.

Next year’s DB 2016 will cover quality measures as well (on top of the regulatory measures covered right now), including the quality of building regulations, the reliability of electricity supply, the quality of land administration system, the postfiling process of paying taxes, and the quality of judicial administration system.

Nepal in DB 2015

In terms of ease of doing business, Nepal ranked 108 out of 189 economies. In DB 2014, Nepal ranked 109 out of 189 economies. Between DB2014 and DB2015, Nepal initiated one reform in starting a business, which led to improvement in its ranking in that category by 35 notches. Specifically, Nepal made dealing with construction permits easier by implementing a new electronic building permit system. This pushed up Nepal’s ranking in dealing with construction permits indicator to 91 from 126 in DB 2014. In registering property indicator as well, Nepal’s ranking improved by 2 positions (up from 29 in DB 2014 to 27 in DB 2015). The ranking in all other indicators has gone down.

Doing Business 2015: NEPAL
DB rank 2015 108 out of 189 economies
DB rank 2014 109 out of 189 economies
Indicator ranking
Topics DB 2015 Rank DB 2014 Rank Change in Rank
Starting a Business 104 97 -7
Dealing with Construction Permits 91 126 35
Getting Electricity 85 78 -7
Registering Property 27 29 2
Getting Credit 116 111 -5
Protecting Minority Investors 71 70 -1
Paying Taxes 126 120 -6
Trading Across Borders 171 169 -2
Enforcing Contracts 134 134 No change
Resolving Insolvency 82 78 -4

In South Asia region, Nepal has the best ranking (globally 27) in registering property. It requires 3 procedures, 5 days and 4.8% of property value to register a property in Nepal. The regional average is 6.4 procedures, 99.5 days, and 7.2% of property value.

Registering Property
Indicator Nepal South Asia OECD
Procedures (number) 3 6.4 4.7
Time (days) 5 99.5 24
Cost (% of property value) 4.8 7.2 4.2

In trading across borders indicator, Nepal has the lowest rank in the region.

Trading Across Borders
Indicator Nepal South Asia OECD
Documents to export (number) 11 8 4
Time to export (days) 40 33.4 10.5
Cost to export (US$ per container) 2,545 1,923 1,080
Cost to export (deflated US$ per container) 2,545 1,923 1,080
Documents to import (number) 11 9 4
Time to import (days) 39 34.4 9.6
Cost to import (US$ per container) 2,650 2,118 1,100
Cost to import (deflated US$ per container) 2,650 2,118 1,100

The reform measures initiated by Nepal since 2010 are as follows:

  • DB 2015: Nepal made dealing with construction permits easier by implementing a new electronic building permit system.
  • DB 2014: Nepal made starting a business easier by reducing the administrative processing time at the company registrar and by establishing a data link between agencies involved in the incorporation process.
  • DB 2012: Nepal improved oversight and monitoring in the court, speeding up the process for filing claims.
  • DB 2010: Nepal made transferring property easier by reducing the registration fee. Nepal improved access to credit information by starting to distribute historical data.

Distance to frontier

The report also provides scores for ‘distance to frontier’, which benchmarks economies to the frontier in regulatory practice. In other words, it measures the absolute distance to “the best performance achieved by any economy on each Doing Business indicator since 2005 or the third year in which data for the indicator were collected. The measure is normalized to range between 0 and 100, with 100 representing the frontier.”

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. DB 2015 ranking is based on distance to frontier score.

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 2014 means that an economy was 40 percentage points away from the frontier constructed from the best performances across all economies and across time. A higher score in DB 2015 (say 70) indicates an improvement.

Compared to DB 2014, in DB 2015, in Nepal, there was improvement in starting a business, dealing with construction permits, getting electricity, registering property, and trading across borders. There was no change in all other indictors.

Distance to Frontier (% points)
Topics DB 2015 DB 2014 Change in DTF
Starting a Business 83.01 82.71 up 0.30
Dealing with Construction Permits 71.83 64.87 up 6.96
Getting Electricity 76.07 75.67 up 0.40
Registering Property 83.08 83.03 up 0.05
Getting Credit 35 35 No change
Protecting Minority Investors 56.67 56.67 No change
Paying Taxes 66.52 66.52 No change
Trading Across Borders 36.08 36.07 up 0.01
Enforcing Contracts 49.65 49.65 No change
Resolving Insolvency 45.41 45.41 No change

Finally, Kaushik Basu reflects on being a consumer of DB (as Chief Economic Adviser to the Indian government) and producer of DB (as Senior VP and Chief Economist at the WB):

What I suspected when I was a user of Doing Business, and now know, is that a significant number of the top 30 economies in the ease of doing business ranking come from a tradition where government has had quite a prominent presence in the economy, including through the laying out of rules to regulate different dimensions of the activities of the private sector. However, all these economies have an excellent performance on the Doing Business indicators and in other international data sets capturing various dimensions of competitiveness. The top-performing economies in the ease of doing business ranking are therefore not those with no regulation but those in which governments have managed to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector. Ultimately, Doing Business is about smart regulations that only a well-functioning state can provide. The secret of success is to have the essential rules and regulations in place—but more importantly to have a good system of clearing decisions quickly and predictably, so that small and ordinary businesses do not feel harassed.

[...] Another common criticism is implicit in the question, If economy x is growing fast, why does it not rank high on the ease of doing business? First, if the ease of doing business ranking were constructed in such a way that it had a very high correlation with GDP or GDP growth, there would be little reason to have a new ranking. We would be able to get our result from looking at GDP or GDP growth tables. Second, this question is often rooted in the common mistake, already noted, of treating the ease of doing business ranking as an all-encompassing measure of an economy’s goodness. It is not. An economy can do poorly on Doing Business indicators but do well in macroeconomic policy or social welfare interventions. In the end, Doing Business measures a slender segment of the complex organism that any modern economy is. It attempts to capture a segment that is representative of other general features of the economy (and effort will be made to improve on this), but the fact remains that an economy can undo the goodness or badness of its performance on Doing Business indicators through other policies.

[...]A poor score should alert a government that it ought to examine its regulatory structure. On the basis of this it may decide to change some regulatory features and policies in ways that may not even directly affect its ease of doing business ranking but nevertheless improve the economy’s performance. If this happens, and there is some evidence that it does, the Doing Business report would be serving its purpose.