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Published: 12:22 AM, 23 June 2019

What is Ease of Doing Business Index?

M S Siddiqui

International Finance Corporation (IFC), the sister organization of World Bank is working with
developing countries for more than 60 years promotion of private investment, creating markets and
opportunities where they're needed most. Since 1956, IFC has leveraged $2.6 billion in capital to
deliver more than $285 billion in financing for businesses in developing countries. IFC also work for
regulatory reforms in member countries. They have developed the Ease of Doing business index in
order to assess the business environment and regulations in the member countries.

Business regulations are to regulate business activities and good rules promote ease of doing
business. The rules increase the predictability of economic interactions and provide contractual
partners with certainty and protection against abuse. The rules provide property rights and easy
dispute regulation and facilitate fair business for all stakeholders.

The objective is regulations designed to be efficient, accessible to all and simple in their
implementable. Many studies show in cross countries comparison that burdensome business
regulatory procedures are negatively correlated with GDP growth.

In Bangladesh, little research has measured specific aspects of business regulation and analyzed
their impact on economic outcomes such as growth, productivity, investment, informality, corruption,
unemployment, and poverty. The lack of systematic knowledge prevents policymakers from
assessing how good legal and regulatory systems are and determining what to reform.

IFC has been publishing the annual Doing Business reports since 2004 to investigate the scope and
manner of regulations that enhance business activity and those that constrain it. These reports
compare 190 countries on the basis of quantitative indicators of business regulations.

Doing Business Report presents quantitative indicators on business regulation of 190 economies
around the world. Each year, it has a different slogan. Each slogan try to indent the barrier to
business and comparing regulation of member countries and measure the impact of barriers.

For example, the slogan of the first Doing Business Report in 2004 was 'Understanding Regulation'.
Similarly slogans of the other editions were 'Removing obstacles to growth' in 2005, 'Creating jobs' in
2006, 'How to reform' in 2007, 'Comparing Regulation in 178 Economies' in 2008, 'Comparing
Regulation in 181 Economies' in 2009, 'Reforming through difficult times' in 2010, 'Making a
difference for entrepreneurs' in 2011, 'Doing Business in a More Transparent World' in 2012,
'Smarter Regulations for Small and Medium-Size Enterprises' in 2013, 'Understanding Regulations
for Small and Medium-Size Enterprises' in 2014, 'Going Beyond Efficiency' 2015, 'Measuring
Regulatory Quality and Efficiency' in 2016, 'Equal Opportunity for All' in 2017, 'Reforming to create
jobs' in 2018 and finally it was 'Training for Reform' in the Doing Business Report of 2019.

The report contains regulatory indicators have four key goals. First, it aims to motivate reforms
through country benchmarking. Second, to inform the design of reforms by highlighting specifically
what needs to be changed. Third, the dataset enriches international initiatives on development
effectiveness. Fourth, the dataset tries to inform theory by producing new indicators that quantify
various aspects of regulation, facilitating tests of existing theories, and contributing to the empirical
foundation for new theoretical work on the relation between regulation and development.

Countries with more democratic and limited governments have lighter regulation of entry facilitate
better growth of businesses. Various empirical studies look at business regulations trends across
countries over the last decade. One of these studies on the regulation of entry of start-up firms in 85
countries find that countries with heavier regulation of entry have higher corruption and larger
unofficial economies, but not better quality of public or private goods.

The competition in domestic market is barriers in relatively restrictive countries with high level of
state control create the domestic barriers lead to barriers in international trade and investment. to
competition tend to be higher in countries that have higher barriers to foreign trade and investment.

It has been estimated that if the state barrier or too much regulation delay shipment for a additional
day prior to being shipped reduces trade by more than 1%. It is established by research that each
positive reform in trading-across-borders regulations (i.e. time, costs, and procedures needed to
export or import a cargo) is associated with a 0.88% increase in average economic growth rate.

Doing Business compiles 10 sets of indicators covering various aspects of the business climate
including starting a business, paying taxes, obtaining licenses, getting credit, protecting investors,
employing workers, international trade, property registration, closing a business and enforcement of
private contracts. The annual Doing Business report includes information on important reforms on
each of these indicators.

A positive reform, as defined in Doing Business reports, is one that makes it faster, cheaper or
administratively easier for local businesses to start and run operations; or a reform that defines and
increases the protection of property rights. An example is reducing the number of days to get an
industry license, eliminating the minimum capital requirement for start-ups, or increasing the legal
rights of creditors and minority shareholders.

The ease of doing business index ranks economies from 1 to 190. For each economy the ranking is
calculated as the simple average of the percentile rankings on each of the 10 topics included in the
index in Doing Business. In addition to ranking of current year, Doing Business presents a
comparable ranking for the previous year, adjusted for any changes in methodology as well as
additions of economies or topics.

The survey analysis uses the simplest method of weighting all topics equally and, within each topic,
giving equal weight to each of the topic components. The measure or method of construction of
Doing business index has certain methodology. As for example, in the study of 2013, In Finland it
takes 3 procedures, 14 days and 4% of property value in fees to register a property. On these 3
indicators Finland ranks in the 6th, 16th and 39th percentiles.

So on average Finland ranks in the20th percentile on the ease of registering property. It ranks in the
30th percentile on starting a business, 28th percentile on getting credit, 24th percentile on paying
taxes, 13th percentile on enforcing contracts, 5th percentile on trading across borders and so on.
Higher rankings indicate simpler regulation and stronger protection of property rights. The simple
average of Finland's percentile rankings on all topics is 21st. When all economies are ordered by
their average percentile rankings, Finland stands at 11 in the aggregate ranking on the ease of doing
business.

If an economy has no laws or regulations covering a specific area-for example, insolvency-it

receives a "no practice" mark. Similarly, an economy receives a "no practice" or "not possible" mark
if regulation exists but is never used in practice or if a competing regulation prohibits such practice.
Either way, a "no practice" mark puts the economy at the bottom of the ranking on the relevant
indicator. Bangladesh has insolvency law however not in practice.

The ranking of Bangladesh in insolvency is 153 out of 190. The ease of doing business index has
some limitations. It does not account the proximity to large markets, the quality of its infrastructure
services except services related to trading across borders, building construction permit and getting
electricity, the strength of its financial system, the security of property from theft and looting,
macroeconomic conditions or the strength of underlying institutions.

It can measure the regulatory performance of economies only relative to the performance of others.
It does not provide information on how the absolute quality of the regulatory environment is
improving over time. Nor does it provide information on how large the gaps are between economies
at a single point in time.It has find that among others show that institutions are a major determinant
of wealth and long-term growth. Countries that had better political and economic institutions in the
past are richer today.

According to the Doing Business Report 2019, Bangladesh ranked 176th among 190 countries.
According to available data, Bangladesh's position in starting a business is 138, dealing with
construction permits 138, getting electricity 179, registering property is 183, getting credits is 161,
protecting minority investors is 89, paying taxes is 151, trading across borders is 176, enforcing
contracts is 189 (worst performing indicators), and resolving insolvency is 153. Bangladesh
performed better in protecting minority investors (89) and worse is the enforcing contract (189).

Unfortunately, the position of Bangladesh is in the bottom of the list and not keen to reform to
improve ease of doing business. Since its launch in 2003, Doing Business has inspired more than
3,500 reforms in the 10 areas of business regulation measured by the report in different countries.
This year a peak in reform activity worldwide-128 economies undertook a record 314 reforms in
2017/18.

Around the world, registering a business now takes an average of 20 days and costs23% of income
per capita, compared to 47 days and 76% of income per capita in 2006. Even more telling, today the
average paid-in minimum capital that entrepreneurs must deposit is 6% of income per capita,
compared with 145% of income per capita in 2006. The global average time to prepare, file and pay
taxes has fallen from 324 hours in 2005 to 237 hours in 2017.

The writer is a Legal Economist.

Email: mssiddiqui2035@gmail.com