In a report “Doing Business 2015” published by the World Bank recently, the South Asia regional profile detailed how economies in the region compare with each other on ‘Ease of Doing Business’. Having updated its methodology, the latest report compares economies based on “Two aggregate measures: the distance to frontier score and the ease of doing business ranking.”
The report sets out to explain that its ease of doing business ranking pits economies against each other, while the distance to frontier score benchmarks countries against regulatory best practice. On that basis, the distance to frontier score of an economy reflects “the absolute distance to the best performance on each Doing Business indicator.”
While trying to make sense of reports like these, the ‘Ease of Doing Business’ ranking seems to tell one kind of story – that Economy X is doing poorly compared to Economy Y or Z. But what is often missed is how a specific economy has worked to catalyse enterprise by making even small but vital changes to its own regulatory environment, for example. In the World Bank report, the distance to frontier score is meaningful and its finer details easy to miss in the face of tall rankings.
India ranks 158 on ‘Ease of Starting a Business’ while countries such as Maldives and Afghanistan are placed at 50 and 24, respectively. One of the reasons for this is that India requires new businesses to clear more procedures than many other countries. The report indicates other factors too.
But put rankings aside for a bit and look at how easy or difficult it is for a business to have access to electricity, for example – Afghanistan, Pakistan and India rank fairly close to each other, with India actually ranking higher. But why does it take as long as 75 days for businesses in Latin America and MENA that rank way higher for ‘Ease of Business’ to get electricity, when it’s an essential resource for business?
Little to go by Countries that want to encourage manufacturing and rural enterprise must ease bureaucracy around electricity and enable faster access to it. The report clearly reflects that the cost of getting electricity is 7-8 times higher in some better ranked economies than in India.
It admits very early on that “the ease of doing business ranking can show only how much the regulatory environment has changed relative to that in other economies”. Because, change in the regulatory environments of various economies happens over time. And local policy or legacy changes that seem to help one economy may not necessarily help another.
The World Bank report credits India, along with some other names, for a number of ways it has tried to make doing business easier. While rankings are helpful, they’re not the whole story and, risk oversimplifying the understanding of what it takes to fuel enterprise anywhere.