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Reforming the regulatory structure
For quite some time there has been a clear felt need for re-assessing the numerous regulations that control the business environment in Bangladesh. Different surveys over the years have repeatedly re-affirmed that business activity in this country has been held back because of inherent unnecessary complexities. They have and continue to cast long shadows on our reputation as a business and investment destination.
I take this opportunity to refer to certain aspects of the report entitled 'Doing Business 2008' published recently by the International Finance Corporation (IFC). The publication has brought out certain startling figures with regard to Bangladesh. Some of the findings in this report have already been mentioned in the press but I want to use the report once again to underline some of the areas where we can definitely improve.
In terms of ranking we are 107th (out of 178) in the international scale pertaining to 'ease of doing business'. Singapore is number one and the Democratic Republic of Congo number 178. Interestingly, Thailand at 15 is ahead of France and Germany. Pakistan is at 76, China at 83, Vietnam at 91 and Sri Lanka at 101. They are ahead of us. However, thin South Asia, Bhutan (119) and India (120) are below Bangladesh.
We are 92nd with regard to 'starting a business,' 116th with regard to aspects 'dealing with licenses', 129th regarding 'employing workers', 171st regarding 'registering property', 48th pertaining to 'getting credit', 15th for 'protecting investors', 81st regarding 'paying taxes', 112th regarding 'trading across borders', 175th with regard to 'enforcing contracts' and 102nd for 'closing a business'.
It has also been calculated that on an average it takes 74 days to start a business in Bangladesh. This includes the completion of at least 14 procedures to obtain different licenses, which in turn might cost the equivalent of Taka 60,000/- (i.e. if you are lucky)!
The comparative standings on the different scales also point out that Bangladesh as well as most of South Asia, are lagging behind ASEAN and most investor destinations in East Asia and in Latin America.
The methodologies applied by the IFC in according ranks are not necessarily perfect. The IFC has acknowledged that their assessments have suffered from certain limitations. They have not always been able to factor in aspects like--existing quality of infrastructure services, the security of property from theft, transparency in government procurement process, macroeconomic conditions or the underlying strength of institutions. Nevertheless, overall, the IFC report is revealing for what it contains and what it points to.
Analysts agree that both India and China have initiated some reforms but they also reiterate that further reforms within their regulatory structures are still needed. It is also noted that India is gradually picking up steam because of its massive manufacturing base and advantages derived from Business Process Outsourcing. Similarly, China is also seen as having gained because of its growth within the world industrial off shoring matrix.
Our interim caretaker government in the recent past has taken important steps -- the formation of the Better Business Forum (BBF) and the Regulatory Reforms Commission (RRC). These have ostensibly been constituted to promote investment and re-generate economic activity. These decisions can only be described as timely given the fact that registration of foreign investment proposals in terms of US dollars has dropped by over 57 percent in the last fiscal year compared to that of the previous year. Total investment proposals, local and foreign, have also reduced by 33.46 percent in terms of US dollars. One can only hope that these new measures will help us to turn around our economic fortunes.
The government has claimed that the regulatory reforms commission has been created to establish 'a business-friendly climate' throughout the country. In this context the finance and planning adviser has suggested that the RRC should hold dialogues with all stakeholders, including representatives from the private sector, government, media and the civil society. He believes that such a positive engagement will help to prepare their recommendations.
The RRC will have several challenges ahead of them. The principal among them will be that of altering the mindset of not only those associated with economic activity but also those who are supposed to monitor and regulate commerce and industry. The latter group would include the bureaucracy and those within the network of financial institutions charged with the responsibility of credit extension as well as recovery. Focus on them will be especially necessary because of their expected role as facilitators of the process.
The RRC as a first step needs to start an inventory of all legal instruments and to identify the institutions that are individually responsible for the control of the different regulatory activities. Such an inventory should include in detail the names of the respective regulations, their objectives, the fees to be paid and forms that need to be completed for this purpose. This review, evaluation and analysis of collected business procedures will however have to be undertaken in consultation with private sector stakeholders and interest groups. Such an approach can help in identifying unnecessary duplication that creates red tape and wastes time. It would be advisable in this regard to seek expert advice from Singapore and multilateral financial institutions like the ADB or the World Bank. They could particularly undertake impartial review of licensing required in sectors related to foreign investment in Bangladesh linked with export. The private sector could also help by certifying the priority areas.
We must understand that doing business has to be made simpler. The only way to achieve this objective is to reduce business regulations, many of which have continued to linger on within our administrative procedures due to absence of necessary spring-cleaning. Thomas L Friedman has correctly pointed out that the world has become more flat due to greater opportunities being easily accessed to by everyone, not necessarily by only those living in developed countries. Taking the corrective steps will ensure administrative savings and make Bangladesh a more business friendly destination.
The dynamics of regulatory impact assessment system will however have to be made continuous. It cannot be of a one-off variety. This will be required because of the very nature of the reform being attempted. This in turn suggests that there should be a permanent secretariat for this purpose. It could then be entrusted with the difficult task of coordination between relevant government offices and chambers of commerce (at different levels), collection of data, updating and implementation. This secretariat would also have to monitor the economical, sociological and ecological impact of changing regulations and the role being played by the associated regulators.
The government has created the RRC but will also need to exhibit the necessary subsequent political will and commitment that will be required for the implementation of its recommendations. The concerned authorities will, as mid-term measures, also have to ensure technical capacity building both within the administration and the private sector. This will enable the disseminating of correct information and the extending of the scope of true corporate governance. This will be possible through the maintenance of a central electronic register of regulations. Creation of such an environment will in turn help to align future projects with existing reform efforts.
We have to remember that attracting foreign direct investment and latest technology is difficult. It rests largely on what kind of image we have abroad. This, to a large extent is determined by international perception pertaining to several factors--political stability, availability of infrastructure, educational competence, principles of governance, corruption, and if there is due process of law. Our diplomatic missions abroad as well as our Ministry of Foreign Affairs will have to play a significant role in this regard. Consequently, I believe that there should be a representative from the Ministry of Foreign Affairs within the RRC. This ministry needs to be part of the process because they man the frontline of our country's aspirations.
Similarly, I consider that the RRC should take necessary steps to elicit opinion about reforms from representatives of different important political parties. Such parties have members, economists and businessmen within their ranks. They are normally entrusted with the responsibility of monitoring economic activity within the country and formulating the required politics on behalf of such parties. These parties should be asked by the RRC to provide it with their views and suggestions regarding reforms within the regulatory paradigm. Least common denominators can then be identified for consideration by the RRC.
This mutual engagement between the politicians and the RRC could subsequently be cemented with the setting up of a special Parliamentary Committee after the next elections. This Committee, as in several countries in Europe and the USA, could oversee practices linked to the process of reviewing regulations, trade and investment. In future such a Committee could also convene public hearings in the presence of relevant representatives from different stakeholders in case of complaints of transgression of laws.
The last aspect will be the 'compliance cost' arising out of regulatory reform. This will have to be shared between the government and the private sector on the basis of equal partnership. After all, any benefit that will accrue from such reforms will help both parties. This will also be the only way to make the anticipated changes more cost-effective and easily implementable. It will be an arduous exercise, but if successfully completed, will definitely give us better governance, less of corruption and conformity with international practices and standards.
Muhammad Zamir is a former Secretary and Ambassador who can be reached at mzamir@dhaka.net
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