Doing business: Why should we care about global indicators?

The World Bank Group released its Doing Business 2010 report on September 9. This report, the seventh in an annual series that started in 2003, has a sobering message for Bangladesh. Despite some significant reforms, Bangladesh has slipped in the global rankings on the ease of doing business. It was the same story last year.
It is little comfort that a day earlier, when the Global Competitiveness Report was launched, Bangladesh showed an improvement in the competitiveness rankings by five places. These two indicators measure two different things -- one looks at more than a dozen dimensions of competitiveness, from infrastructure endowments to the state of health and education facilities, while the other looks in-depth at the regulatory regime. Hence, the minor discrepancy is not surprising. But both reports have a common message. Bangladesh is way behind on both sets of indicators and, in a fiercely competitive world, there is no guarantee that a small improvement in ranking this year will not be reversed next year. After all, relative rankings do not depend only on what we do ourselves. They are also influenced by what our competitors are doing-- and they're not sitting still!
This is very evident from the Doing Business Report. Every year, the report identifies the 10 most significant reformers of the preceding year. This year's list includes, among others, Rwanda, Liberia, Kyrgyz Republic and Tajikistan. These are countries we rarely consider when thinking of competition - our sights are usually on countries such as Vietnam, Cambodia or Colombia and in our more ambitious moments perhaps Malaysia, Thailand or Poland. Yes, the Tajikistans and Liberias of the world are still behind us. But they will not be there for long if they continue reforming at the pace they are. Rwanda is a glaring example. Last year, it was 30 places below us on the Doing Business rankings; this year, it is 52 notches above!
The world is changing fast. Time and tide waits for no one; nor do competitors. As the world is getting out of recession, opportunities will emerge for us. Many foreign investors will once again start looking for investment opportunities. But it is unlikely that will be looking at the developed world-- at least not yet. The trend that had started before the recession, i.e., a shift in foreign investment from the developed to the developing world, will be accentuated as recovery proceeds. But will we be able to exploit these opportunities? There is a risk that we may miss the boat. The window of opportunity will not last for too long.
Many investors had been showing interest in Bangladesh in recent years. Then the recession stuck and investment plans were kept on hold. The fact that we had an interim government was also a damper -- foreign investors were unsure whether the policies of that government will be sustained. Now that we have a democratic government with a longer-term mandate, that uncertainty has been reduced. But danger lurks.
Investors who were expanding their horizons beyond China and Vietnam, and started looking at countries like Bangladesh, will now realize that there is a wider range of countries to choose from. In the past, the name Rwanda may have evoked images of genocide and Tajikistan that of a drug conduit for Afghanistan. But now investors will read the Doing Business Report of the World and will note that these countries have been recognized as among the top 10 reformers in the world. They will wonder why and they will spend some time and effort researching on these countries. And, in doing so, they may discover opportunities in these places which they did not know existed.
As more countries come on their radar screen, investors may lose interest in Bangladesh, especially if they start encountering a maze of regulatory barriers and government agencies which constantly say "maybe", but never yes or no. Investors don't necessarily mind if you tell them clearly and quickly that their proposals can't be accepted. They appreciate a quick decision even if it is negative -- what puts them off is the uncertainty associated with the "may be" attitude. In a competitive world when many opportunities exist, no one likes to be kept on hold for too long.
This brings us back to the importance of global indicators. Firstly, any indicator, global or local, is important. As someone once said, "What gets measured, gets done". The Doing Business indicators are particularly useful in this regard. Each of these indicators goes in-depth in the regulatory area it is measuring and pinpoints exactly where the problems lie. Take, for example, the indicator "Starting a Business". For Bangladesh, this indicator tells us that there are seven steps to be followed from getting a name clearance (i.e. approval for the name that you want to give your company) to obtaining tax identification numbers.
It further tells us that during the past year, there have been significant reductions in the time required to complete two of these steps, i.e., obtaining the name clearance and the processing of applications at the Office of the Registrar of Joint Stock Companies. But some other steps remain problematic; in particular, it still takes a long time to pay the registration fee because the procedures involved remain cumbersome. We also learn that it still takes much longer than it should to obtain a tax identification number. Such precise identification of problem areas makes it easier for government to take action. And precise measurement allows everybody to focus. There can be disagreements and debates but when they are around precise indicators they are usually much more fruitful than the ones where governments and other stake-holders talk past one other.
There is another reason why we should care about global indicators. As discussed above, foreign investors (and also increasingly donor governments) are looking at these global indicators to base their decisions on. Foreign investors typically start by making a long list of potential investment destinations. They do not have the time and resources to do extensive research on a long list -- such research is usually done after a short list is made.
Thus, for the initial long listing such global indicators matter a lot. Countries which are doing well on such indicators come fast onto the investors' radar screens. Those who are not, will not make it. And the important thing is not always where you stand on the ranking but whether you are moving up. A country that has moved from 140 to 110 this year may seem more attractive to some investors that a country which is at 80 but not moving. That is why there is a risk that countries such as Rwanda or the Kyrgyz Republic may suddenly pass us by while our eyes were fixated on the Vietnams and Colombias of the world.
In brief, Bangladesh has been reforming but not aggressively enough. We have to move faster if we are to exploit the limited window of opportunity that will emerge as the world comes out of recession. As I said above, time and tide waits for nobody. Nor do investors. Let us act before the window closes.
Syed Akhtar Mahmood is with the International Finance Corporation. He can be reached at smahmood@ifc.org.