Change in methodology jacked up Bhutan’s ranking by 54 places
Ranking: Bhutan has actually dropped by one place on the Ease of Doing Business index, from 70 in the previous year to 71.
While it was believed that the country leapt 54 places, from 125 to 71 in a year’s time, the World Bank implemented a change in methodology of assessing the economies because of which last year’s rank of 125 was changed to 70.
However, an economist claimed that it doesn’t make sense to compare last year’s ranking and this year’s because the methodology was different and improved. Comparison based on same methodology, he said would be logical.
Taking this into consideration, the country’s rank has indeed dropped by a place.
Lyonchoen Tshering Tobgay interacting with journalists at the last meet-the-press attributed the big jump to the government’s hard work. It was a result of government’s hard work, the Prime Minister had said.
Speaking to Kuensel, the Resident Representative of the World Bank, Genevieve Boyreau said in terms of relative figures, there has been a drop of one place because other countries reformed faster. “It doesn’t mean that Bhutan has not improved.”
Because of the changed methodology, Bhutan went ahead of countries like China (84), India (130), Bangladesh (174) and Brazil (116), among others. “This itself is a big improvement,” she said.
The Resident Representative said there has been a big change in measuring the parameter on ‘trading across borders.’
In the past, to assess ‘trading across borders,‘ cost, time and procedures involved, was considered from the capital to nearest seaport, Kolkata in Bhutan’s case. This, she said has been changed to nearest border for landlocked countries (Jaigaon in Bhutan’s case). “Customs clearance is much efficient in Phuentsholing and because of this Bhutan made an enormous jump.”
Besides, she said there has also been improvement in property registration and efficiency gains in access to electricity.
Where Bhutan lags
The country is not yet rated for resolving insolvency or bankruptcy and because it is not rated, it actually ended up at the rock bottom, at 189, on this parameter.
“The minute Bhutan starts rating bankruptcy, a huge improvement is anticipated,” Genevieve Boyreau said. “It’s a big opportunity for improving the 71 rank further.” For this, she said the World Bank is supporting the government to draft a new bankruptcy law.
In terms of protecting minority shareholders, the country is placed at 115. Should the Business Enterprise Registration Bill come through with clauses to protect minority shareholders, she said Bhutan could easily rank better. “It is a low hanging fruit.”
Will this attract more FDIs?
Economic affairs minister, Norbu Wangchuk said the country’s huge stride in Ease of Doing Business need not necessarily translate into a “flood of FDIs but gives the stature of a well developed country.”
“But it enhances the image of the country-it means that we are a country who means business, respect rule of law and protect the investors,” he said.
The Resident Representative said Ease of Doing Business is just an element covering the regulatory aspects of investment climate. “Good rankings do send strong signals both within and outside the county but there is no guarantee on FDI inflow,” she added.
This means that higher-ranking countries have more conducive regulations to do business, but it does not cover the aspects of macroeconomic stability, market size and quality of workforce.
Limitations of the index
The Doing Business methodology has limitations. Other areas important to business—such as an economy’s proximity to large markets, the quality of its infrastructure services, the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions—are not taken into account while assessing the economies.
There are rigid benchmarks and assumptions made on all the parameters.
Trading across borders, for instance, considers the distance and cost from largest city to border. While there could be other cities with business establishments near or far from the border, there is no flexibility in measuring the parameter.
In Bhutan’s case, most export commodities to other countries are either processed or manufactured in the bordering towns. But measurements for the sake of ranking is considered from Thimphu to Jaigaon.
Many of the parameters, such as enforcing contracts, starting business and registering properties are based on the assumption that proponent is a limited liability company.
Most of the limited liability company in Bhutan are listed in the stock exchange and are countable in numbers.
This means that small and medium enterprises, including the traders are under-represented and this is why many small businesses are of the view that ground reality of Doing Business is different from the ranking.
The Resident Representative said that these assumptions and benchmarks are global definitions, which are not flexible. She agreed that private sector in Bhutan is skewed between big companies and small enterprises.
She however said that there are other instruments to assess small businesses. The World Bank has conducted an enterprise survey recently to measure country’s focus on small and medium enterprises. “This is much more Bhutan specific,” she said.
To evaluate the country’s performance of market size, macroeconomic stability, quality of workforce and infrastructure, she said the global competitiveness index should take care, in terms of where economies stand.
While Genevieve Boyreau said it is difficult to forecast the future rankings, she is optimistic that Bhutan could only improve further.
Because there are efforts from the government and on-going reforms that are not yet been assessed in this year’s report, She said the government has also pushed the World Bank to review the data and information, furnished new ones to reflect the ground realities.
Online business registration, land registration, access to credit and online construction permit are but few reforms that the government has initiated and are on -going.
“This will bear fruit in the future,” the Resident Representative said.
Lyonpo Norbu Wangchuk also said that reforms would not stop here and that the ranking is further going to improve.