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Bhutan slips in ease of doing business ranking

Bhutan’s ranking on ease of doing business has been slipping for the last three years despite reforms and the government’s pledge to take the country’s ranking to the top 50 in the next two years.

The World Bank’s ease of doing business report, 2018, which compares business regulation  for domestic firms in 190 economies, placed Bhutan in the 75th position.

In its 2015 report, the country was ranked 70th, its best ranking. However, this happened because the World Bank had changed its methodology in assessing the economies back then. With the earlier methodology, the country was ranked 124th in 2015.

Bhutan’s rank dropped by one place in 2016. This further slipped to 73rd in the 2017 report that was published last year.

Despite Bhutan’s falling rank, the country is still the considered the best place to do business  in the region with India ranking 100, Nepal (105), Sri Lanka (111), the Maldives (136) Pakistan (147), Bangladesh (177) and Afghanistan (183).

The report however stated that Bhutan is among the economies improving the most across three or more parameters and that South Asia is the only region not represented in the top 50 ranking for ease of doing business.

However, India stands out this year as one of the 10 economies that improved the most in the areas measured by doing business.

The regions with the highest share of reforming economies in Doing Business 2018 are Europe and Central Asia, South Asia and Sub-Saharan Africa.

India made obtaining  building permits faster by implementing an online Single Window System for the approval of building plans. The new system allows for the submission and approval of building plans prior to requesting the building permit. India also streamlined the business incorporation process.

Access to credit in Bhutan, according to the report, improved by expanding the scope of information collected and reported by credit bureau.

Bhutan was also one of the nine economies that took steps to clarify corporate governance, ownership and control structures. For example, it enacted legislation that requires companies to nominate independent board members and set up an audit committee. These changes resulted in improvements in the scores of these nine economies on the extent of ownership and control index.

With regard to judicial reforms, introduction of dedicated benches for commercial cases also helped improve Bhutan’s score in this parameter. Simplified preregistration and registration formalities (publication, notarization, inspection, and other requirements) were assessed to evaluate this parameter. This has resulted in Bhutan’s ranking jumping to 25 in terms of enforcing contracts. It however stated that, it takes about 225 days to enforce a contract in Bhutan.

Bhutan ranked 88 in terms of starting business. Eight procedures are involved and it takes about 12 days to start a business in Bhutan, according to the World Bank. “Bhutan made starting a business easier by reducing the time for obtaining a security clearance certificate, registering at the Office of the Registrar and registering for taxes,” the report stated.

In terms of dealing with construction permits, Bhutan is ranked 82. There are 21 procedures involved consuming about 150 days for a permit to materialise.

Four procedures and 61 days are consumed to get electricity connection. Bhutan is ranked 56 in this parameter.

While Bhutan is again ranked 56 in terms of registering properties, it takes three procedure and 77 days to do so.

Even with reforms, Bhutan is ranked 77 in getting credit. It is however ranked 17 in terms of paying taxes and 26 for trading across border.

While Bhutan strengthened minority investor protections by clarifying ownership and control structures, the country ranked 124 in terms of protecting minority shareholders. This is because the minority shareholders’ rights are reduced.

The country’s lowest ranking was in resolving insolvency (168), meaning the cases of bankruptcy. This is attributed to lack of such cases in the country and thus there is no practice of resolving insolvency.

Good ranking do not however guarantee FDI inflow, it conveys countries’ regulatory aspects to do business. But it does not cover the aspects of macroeconomic stability, market size and quality of workforce. 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. 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 are considered from Thimphu to Jaigaon.

Many of the parameters, such as enforcing contracts, starting business and registering properties are based on the assumption that the proponent is a limited liability company. Most limited liability companies 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 making small businesses believe that the ground reality of doing business is different from the ranking.

This is why other instruments such as the enterprise survey conducted by the World Bank, to assess small businesses are Bhutan specific as private sector in the country is skewed towards small firms.

Meanwhile, the latest ease of doing business report 2018, declared New Zealand as the best country to do business. Singapore, Denmark, Korea, Hong Kong, United States, United Kingdom, Norway, Georgia and Sweden are among the top 10 countries listed in the ease of doing business.

Tshering Dorji

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