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Doing business in Sri Lanka and tightening the grip

26 Jun 2015 - {{hitsCtrl.values.hits}}

The “Doing Business Index 2015’ has been published for the 12th year in 2014. The latest report on 2016 will be released soon by the World Bank. The index mainly investigates the enhancing and restricting aspects of business in a country. 189 economies were subjected to evaluation under 10 criteria which affect the life of businesses namely: Starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency and employing workers. In addition to the above the report pays attention to the distance to frontiers.The distance to frontier score captures the gap between an economy’s performance and measure the distance to best performing economy.

If categorized in a broad manner it would reflect as given below:

As start up - starting a business and employing workers
In getting a location - dealing with construction permits, getting electricity, registering property
In getting finances - getting credit, protecting investors Daily operations - paying taxes, trading across borders

When things go wrong - enforcing contracts and resolving insolvency.It is important to note that Governments have a vital responsibility in providing a vibrant & sustainable environment for private sector businesses to grow. Without good rules that are consistently and equally enforced, entrepreneurs have a harder time starting and growing the small and medium-size firms that are the engines of growth and job creation for most economies around the world.

The global economy is in a constant change and transformation, it makes a huge difference in any competing economy, the facts such as, the set rules are sensible or excessively distressing, whether they provide incentives and help establish a level playing field, whether they maintain transparency and encourage adequate levels of competition. Doing Business helps mobilize policy makers to reduce the cost and complexity of government procedures and to improve the quality of institutions. Such change serves the underprivileged the most where more firms enter the formal sector, entrepreneurs have a greater chance to grow their businesses and produce jobs, and workers are more likely to enjoy the benefit of regulations such as social protections and safety regulations.

WHAT DOING BUSINESS DOES NOT COVER
The Doing Business data have key limitations that should be kept in mind. The Doing Business indicators are limited in scope. In particular it does not measure the full range of factors, policies and institutions that affect the quality of the business environment in an economy or its national competitiveness. Further, It does not, for example, capture aspects of security, theprevalence of bribery and corruption, market size, macroeconomic stability (including whether the government manages its public finances in a sustainable way),the state of the financial system, the state of the rental or resale property market or the level of training andskills of the labor force.

TRADE REGULATIONS AND COSTS
As the world’s economies have become more interlinked, both public and private sectors have become increasingly concerned about becoming more competitive in global markets. But in many economies, companies engaged in international trade still struggle with high trade costs arising from transport, logistics and regulations, impeding their competitiveness and preventing them from taking full advantage of their production capacity.
With the availability of Doing Business indicators on trading across borders which measure the time, procedural and monetary costs of exporting and importing several empirical studies have assessed how trade costs affect the export and import performance of economies. Courts, credit markets, bankruptcy laws and investor protection are among the regulatory areas covered by Doing Business that have received less attention in most developing economies when it comes to the number of reforms.

DBI 2015 Sri Lanka Standing
The report presents results for 2 aggregate measures: the distance to frontier score and the ease of doing business ranking. While this ranking tells much about the business environment in an economy, it does not tell the whole story. Still, a high ranking does mean that the government has created a regulatory environment conducive to operating a business. For policy makers, knowing where their economy stands in the aggregate ranking on the ease of doing business is useful

1.Starting a Business In Sri Lanka
Doing Business measures the ease of starting a business in an economy by recording

all procedures officially required or commonly done in practice by an entrepreneur to start up and formally operate an industrial or commercial business, as well as the time and cost required to complete these procedures. It also records the paid-in minimum capital that companies must deposit before registration (or within 3 months).

Starting a business in Sri Lanka requires 9.0 procedures, takes 11.0 days, costs 20.7% of income per capita and requires paid-in minimum capital of 0.0% of income per capita. Sri Lanka is ranked 104 in this sub category where India, Pakistan and Bangladesh are ranked below Sri Lanka.

As per the Index, there are several Government entities involved in this process. Registrar of Companies, Government Publication Bureau, Inland Revenue Department, Department of Labour and the Central Bank of Sri Lanka. It is by improving efficiencies of these agencies and processes taking place in these agencies that Sri Lanka could gain better ranking globally in this category.

2.DEALING WITH CONSTRUCTION PERMITS IN SRI LANKA
Globally, Sri Lanka stands at 60 in the ranking of 189 economies on the ease of dealing with construction permits. Sri Lanka stands 2nd place Maldives being the first in South Asian region.

Municipal Council of Colombo (CMC), Fire Service Department of the CMC, Water and Drainage Department of the CMC, Planning Division of the CMC and National Water Supply and Drainage Boardas captured by the index above organizations are involved in issuing construction permits and it takes 12 procedures which take 169 days.

3.GETTING ELECTRICITY
Globally, Sri Lanka stands at 100 in the ranking of 189 economies on the ease of getting electricity where Pakistan, Bangladesh and India are ranked below Sri Lanka in the South Asian region. Both Ceylon Electricity Board and Colombo Municipal Council get involved in this process. There are 5 procedures and it takes 104 days in Sri Lanka.

4.REGISTERING PROPERTY
What does it take to complete a property transfer in Sri Lanka? According to data collected by Doing Business, registering property here requires 9.0 procedures, takes 51.0 days and costs 5.1% of the property value. Both India and Pakistan are ahead of Sri Lanka (ranked 131 globally) in the south Asia. Land Registry, Colombo Municipal Council, Provincial Department of Revenue, a state Bank are the stake holders in this process.

5.GETTING CREDIT
How well do the credit information system and collateral and bankruptcy laws in Sri Lanka facilitate access to credit? The economy has a score of 6 on the depth of credit information index and a score of 3 on the strength of legal rights index. When economies strengthen the legal rights of lenders and borrowers under collateral and bankruptcy laws, and increase the scope, coverage and accessibility of credit information, they can increase entrepreneurs’ access to credit.

Globally, Sri Lanka stands at 89 in the ranking of 189 economies on the ease of getting credit. In this category both India and Buthan have done better than Sri Lanka in South Asian region. How strong are legal rights for borrowers and lenders?, The facts: How much credit information is shared and how widely?, are considered seriously in this process.

6.PROTECTING MINORITY INVESTORS
This category considers, protecting minority investors’ matters for the ability of companies to raise the capital they need to grow, innovate, diversify and compete. Effective regulations define related-party transactions precisely, promote clear and efficient disclosure requirements, require shareholder participation in major decisions of the company and set detailed standards of accountability for company insiders. How extensive are shareholder rights, How strong is the Governance structure, How extensive is corporate transparency. Globally, Sri Lanka stands at 51 in the ranking of 189 and India, Pakistan & Bangladesh have got better ranking in this category globally.

7.PAYING TAXES
What is the administrative burden of complying with taxes in Sri Lanka and how much do firms pay in taxes? On average, firms make 47.0 tax payments a year, spend 167.0 hours a year filing, preparing and paying taxes and pay total taxes amounting to 55.6%. Various institutions such as Inland Revenue Department, Municipal Council, EPF & ETF are the stake holders in this process.

Globally, Sri Lanka stands at 158 in the ranking of 189 economies on the ease of paying taxes where all the countries in south Asia are doing better than Sri Lanka except Pakistan

Sri Lanka needs to revaluate this process and take measures to make the system better, simpler and viable for tax payers.

8.TRADING ACROSS BORDERS
What does it take to export or import in Sri Lanka? According to collected data, exporting a standard container of goods requires 7 documents, takes 16.0 days and costs $560. Importing the same container of goods requires 7 documents, takes 13.0 days and costs $690.
Globally, Sri Lanka stands at 69 in the ranking of 189 economies on the ease of trading across borders and stands better than any country in the south Asian region.

9.ENFORCING CONTRACTS
How efficient is the process of resolving a commercial dispute through the courts in Sri Lanka? According to data collected by Doing Business, contract enforcement takes 1,318 days, costs 22.8% of the value of the claim and requires 40 procedures. Globally, Sri Lanka stands at 165 in the ranking of 189 economies on the ease of enforcing contracts. Sri Lanka has done better than Bangladesh and India and rest of the countries stand better than Sri Lanka in South Asia.

10. RESOLVING INSOLVENCY
Combination of quality regulations and efficient practice characterize the top-performing economies. How efficient are insolvency proceedings in Sri Lanka? According to data collected by Doing Business, resolving insolvency takes 1.7 years on average and costs 10.0% of the debtor’s estate, with the most likely outcome being that the company will be sold as piecemeal sale. The average recovery rate is 42.4 cents on the dollar. Globally, Sri Lanka stands at 72 in the ranking of 189 economies on the ease of resolving insolvency.

In order to improve on ease of doing business index or by all means to facilitate the businesses of the economy to progress, it is vital to improve the processes of the Government agencies involved and the time taken for those processes where the benefits should be shared equally by all the business entities of the country.

Direct Reference:Ease of Doing Business Index Report 2015 and 2014
(Writer is the Secretary General/CEO
of the National Chamber of
Commerce of Sri Lanka)

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Doing business in Sri Lanka and tightening the grip

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