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The Financial Express

Ease of doing business: Much remains to be achieved

Rubaiya Ehsan Karishma   | Published: January 11, 2020 21:09:01


Ease of doing business: Much remains to be achieved

Bangladesh has moved up eight notches to 168 among 190 countries in the World Bank's Ease of Doing Business index 2020. The country's ranking was 176 last year. The improvement is an encouraging sign.

While the rank is the result of a cumulative performance, based on 10 indicators, the improvement was mainly achieved in the "Starting a Business", "Getting Electricity" and "Getting Credit" indicators. Minor improvements were achieved in "Dealing with Construction Permits" and "Registering Property" indicators and our best score is in the "Protecting Minority Investors" indicator.

Four more indicators remain that received little to no attention per se, i.e. "Paying Taxes", "Trading across Borders", "Enforcing Contracts" and "Resolving Insolvency". So, it is safe to say that we are more focused on getting more business to start operations in Bangladesh than on making efforts to retain them in the long run. The fact that our performance has further deteriorated in the "Resolving Insolvency" indicator supports the same. If only attracting short-term investments, to start a business, is sought-after, is it not more damaging to the resources (human and otherwise) once the business is interrupted or shut down? Are we equipped to deal with it?

After relentless efforts Bangladesh has successfully climbed 8 (eight) steps in 12 years by positively reforming three indicators out of ten indicators. We must strike while the iron is hot and it is time to make improvements in the remaining indicators. The much-anticipated double-digit rank may be right around the corner. The primary areas that need immediate attention are the last two indicators namely -- "Enforcing Contracts" and "Resolving Insolvency". We have built a foundation and strengthening it will lead to sustainability in the long run.

Being part of the only Alternative Dispute Resolution (ADR) institution in the country established by eminent business persons of Bangladesh, Bangladesh International Arbitration Centre (BIAC) appreciates the implications of not reforming these two indicators. Our neighbouring country, India being the closest to us geographically and culturally but with almost 8 (eight) times our population, has moved to 63 this year from 100 in Doing Business 2018. We should study the reforms they had implemented since Doing Business 2008. One of the most noteworthy reforms has been the Insolvency and Bankruptcy Code 2016 that has revolutionised their "Resolving Insolvency" mechanism.

The Code aims to keep business entities running as a going-concern in order to protect the resources engaged in the venture and the potential of the business to generate revenue that would otherwise be lost if it goes into liquidation. A committee of creditors has the right to apply for insolvency to the National Company Law Tribunal that leads to either liquidation of assets to recover debts or employment of insolvency professional to prepare a resolution plan by restructuring the debts. The process is to be completed in 180 days, extendable up to 90 days. The insolvency professional asks for resolution plans through an auction-like process, by way of which the creditors chose the best plan offering maximum recovery for the creditors. Since its implementation in 2016, as of  November 29, 2019, 2,542 cases have been received of which 116 were withdrawn and 186 were closed (on review/appeal/settled); 586 ended in orders for liquidation while 156 ended in approval of resolution plans. Another report says that about Indian Rupee 750 billion has been recovered under this Code as of March 2019 which is around 43 per cent of debt, whereas via liquidation recovery would be only 22 per cent.

Such results were not achieved overnight and it involves a collective effort of all stakeholders. If our judiciary, financial institutions, central bank and industry experts unite, can we not replicate a similar model for Bangladesh? Can we not strengthen our insolvency mechanism? In a way, the two indicators "Enforcing Contracts" and "Resolving Insolvency" are interdependent. To replicate a similar model, we are in dire need of judicial reforms. Bangladesh International Arbitration Centre (BIAC) has been advocating for the same since its inception in 2011. In recent times, BIAC has successfully raised awareness among stakeholders through outreach programmes in which the law minister, governor of Bangladesh Bank, heads of banks and financial institutions, members of the judiciary, law practitioners and other stakeholders participated.

Singapore is the leading economy in terms of enforcing contracts demonstrating the best regulatory performance. They have introduced electronic litigation system that streamlines litigation proceedings and consolidated law on voluntary mediation over time among other things. Recently, the UN treaty on mediation, namely Singapore Convention on Mediation was signed by 46 countries including Timor-leste, the economy that is at the bottom of the Enforcing Contracts rankings. Since Bangladesh is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral awards, it is only prudent that we become a signatory to this Mediation Convention as well. Our Arbitration Act came into being after the Convention was signed in 1972; we can finally think about having a mother law on mediation after signing the said Convention.

Bangladesh has the most alarming rank under the "Enforcing Contracts" indicator i.e., 189/190 since Doing Business 2004. It has been 16 years and no improvement has been achieved in this area and as previously mentioned, no initiatives were taken either. It takes on an average 4 (four) years to recover through our litigation system and the cost of recovery is 66.8 per cent; that is to say, an investment of Tk 100 comes back as Tk 32.2 after 4 (four) years which would otherwise have generated an interest of Tk 21.55 (assuming at 5.0 per cent per annum) if deposited in a bank for the same period. Therefore, instead of earning, an investor loses 89.35 per cent of his investment in 4 (four) years' time. This is just a tip of the iceberg. The lack of resources remains a concern.

The Indicator takes into account the existence of an Alternative Dispute Resolution (ADR) mechanism, which exists in principle in our country but has proved to be successful only in the family and labour matters. A strong process that addresses commercial matters in a time-bound system is long overdue. Developed economies around the world have exclusive institutions for commercial ADR created by the government and adopted by the people. The stakeholders, including the judiciary and financial institutions, give way to ADR prior to litigation while the court is reserved for more serious cases such as criminal cases. Commercial cases mainly involve the payment-receipt of dues arising from breach of contract; the resources of should not be wasted on such cases that can be solved between parties if encouraged by the regulators.

For the sake of development every country has had to take a leap of faith at some point in their journey towards sustainability. We have the advantage of choosing to adopt the effective strategies instead of dwelling in the unknown. Be it the Sustainable Development Goals (SDGs) or the Doing Business Index, access to justice is a fundamental right of every individual. World's leading economies have shown us the way and we have no reason to be afraid of. It is high time we appreciated the value of our resources and used them wisely.

Rubaiya Ehsan Karishma is Counsel, Bangladesh International

Arbitration Centre (BIAC).

 

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