Table of Contents

Table of Contents.........................................................................................................................................1
Executive Summary....................................................................................................................................4
Chapter I Business Environment Analysis .................................................................................................5
Environmental Analysis Process ............................................................................................................5
Identifying environmental factors ..........................................................................................................5
Scanning and selecting relevant and key factors ....................................................................................5
Defining Variables for Analysis ..............................................................................................................6
Using Different Methods, Techniques, and Tools .................................................................................6
Forecasting Environmental Factors ........................................................................................................7
Designing Profiles ..................................................................................................................................7
Preparing ETOP ......................................................................................................................................7
Preparing SAP ........................................................................................................................................8
Strategic Position and Report Writing ...................................................................................................8
Some Approaches of Specific Environmental Scanning ........................................................................8
Chapter II The Bangladesh Context ...........................................................................................................9
Recent developments ..............................................................................................................................9
Economy ................................................................................................................................................9
Agriculture .............................................................................................................................................9
Industry ..................................................................................................................................................9
Donor assistance ...................................................................................................................................10
Implications for the project ..................................................................................................................10
Chapter III Starting a Business in Bangladesh..........................................................................................11
Dealing with licenses.............................................................................................................................11
Employing workers...............................................................................................................................12
Registering property..............................................................................................................................12
Getting credit.........................................................................................................................................13
Protecting investors...............................................................................................................................14
Paying taxes...........................................................................................................................................14
Trading across borders...........................................................................................................................15
Enforcing contracts................................................................................................................................15
Closing a business.................................................................................................................................15
Chapter IV Business Competitiveness Environment in Bangladesh: Global Comparison......................17
Growth Competitiveness Index (GCI): Bangladesh among the Lowest Performers............................17
Bangladesh’s Ranking in terms of Macroeconomic Performance Index..............................................18
Bangladesh’s Ranking in terms of Technological Development Index................................................18
Bangladesh’s Ranking in terms of Public Institution Index..................................................................19
Business Competitiveness Index (BCI): Deteriorated Performance.....................................................20
Bangladesh’s Ranking in terms of Sophistication and Company Operation Index..............................21
Bangladesh’s Ranking in terms of Business Environment Index.........................................................21
Chapter V Competitiveness Environment in Bangladesh: Domestic Perception.....................................22
Government and the Public Sector: Downgraded Competencies and..................................................24
Burdensome Policies.............................................................................................................................24
Public Institutions: Weak, Inefficient but Slowly Approaching to Average Level...............................25
Infrastructure: Poor, Underdeveloped but Some Sporadic Improvement.............................................25
Technology: Backward especially in ICT.............................................................................................26
Human Resources: Scarcity of Skilled Professionals ..........................................................................26
Finance and Openness: Strengthen the Corporate Governance Practice..............................................27
Company Operations and Strategy: Further Improvement Needed......................................................27
Impediments for Doing Business in Bangladesh..................................................................................27
Chapter VI Conclusion and Policy Recommendations.............................................................................29
Government and the Public Sector and Public Institutions..................................................................29
Infrastructure and Technology...............................................................................................................29
Human Resources..................................................................................................................................30
Finance and Openness...........................................................................................................................30
Domestic Competition...........................................................................................................................31
Company Operations and Strategy........................................................................................................31
Environmental and Social Responsibility.............................................................................................31
Reference...................................................................................................................................................33

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Lists of Tables
Tables Page No
TABLE 1: Ease of Starting a Business 11
TABLE 2: Bangladesh in the Global Ranking 16
TABLE 3: GCR Ranking of SOUTH ASIAN Countries 17
TABLE 4: Change in Bangladesh’s GCI Scores (2005 VS 2004) 18
TABLE 5: Bangladesh’s ranking in terms of BCI 19
TABLE 6: BCI Ranking of SOUTH ASIAN Countries 19
TABLE 7: Rank of Lead Determining Factors 21

Lists of Figures
Figures Page No

Figure 1: Country Profile 11

Figure 2: Protecting Investors in Bangladesh 14

Figure 3: Performance of Government and Public Sector in 2004 23

and 2005

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Executive Summary
"Bangladesh is the third easiest country in which to do business in South Asia," reported a
World Bank-International Financial Corporation report of 6th September 2006. The report
further observed that Bangladesh has undertaken steps to improve its business climate and
one notable reform made recently was the introduction of a new land registration act to
improve security and reduce corruption in land transactions. Among South Asian FDI
regimes, a World Bank report (Foreign Direct Investment in Bangladesh: Issues of Long-
run Sustainability, 1999) judged the Bangladeshi regime to be the most liberal, with no
prior approval requirements or limits on equity participation or on the repatriation of
profits and income. According to the report, not only has Foreign Direct Investment (FDI)
in Bangladesh been growing but it may be significantly underreported, on account in part
of the more open regime.

Although the transition process from an agrarian economy to a manufacturing and service
based economy has only begun, the common consensus between all political parties is that
the market-oriented economic policy must be promoted. The private sector is now the
major source of investment in the country and this is further accentuated by Bangladesh’s
liberal economic approach. Policies of liberalisation, deregulation and reforms have been
combined together to bring about changes in almost all sectors of the economy in tune
with globalisation challenges. By removing all barriers to investment and business,
Bangladesh has opened up its economy. Bangladesh is currently one of the top exporters
of Readymade garments (RMG) to the USA and Europe. Fisheries (shrimp mainly) and
leather products are also being exported at an increasing rate. The Government has
decided to make no new investment in the manufacturing sector, except for its reserved
areas (defence, forestry, nuclear power and security printing). The population reaching
nearly 148 million, Bangladesh is one of the most populous countries of the world and
potentially a sizeable market due to relatively high growth rates and an expanding middle
class with increasing purchasing power.

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Chapter I Business Environment Analysis
Environmental analysis is a systematic process that starts from identification of
environmental factors, assessing their nature and impact, auditing them to find their
impact to the business, and making various profiles for positioning. A common process
of environmental analysis or scanning is discussed in the following section.

Environmental Analysis Process

A business manager should be able to analyze the environment to grasp opportunities or

face the threats. Organizations need to build strength and repair their weakness available
in the business environment. Therefore, this process consists not only a single steps but a
process of various steps.

Environmental analysis comprises scanning, monitoring, analyzing, and forecasting the

business situation. Scanning is to get the relevant information from the information
overload. It is to focus on the most relevant information. Monitoring is to check the nature
of the environmental factors. Analyzing requires data collection and use of different
required tools and techniques. Forecasting is to find the future possibilities based on
the past results and present scenario.

Environmental analysis process is not static but a dynamic process. It may differ
depending on the situation. However, a general process with few comm. on steps can
be identified as the process of environmental analysis these are a) Monitoring or
identifying environmental factors, b) Scanning and selecting the relevant factors and
grouping them, c) Defining variables for analysis, d) Using different methods, tools,
and techniques for analysis, e) Analyzing environmental factors and forecasting, f)
Designing profiles, and g) Strategic positioning and writing a report. Brief discussion is
made on each of the step of this environmental analysis process.

Identifying environmental factors

First of all a strategist should identify all the relevant factors that might affect his or
her business. In this process, one should first know what the internal areas of the
business are. This includes all the systems, internal structure, strategies followed,
and culture of the organization. All these areas can be covered into the five
functional areas in classical approach. Similarly, a business daily interacts with the
close environmental components outside the business such as customer, competitor, and
supplier. It might cover all other stakeholders such as trade union, media, and
pressure group. Furthermore, general such business environment factors as political-
legal, economic, socio-cultural, and technological factors are to be identified.

Scanning and selecting relevant and key factors

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Out of all the business environmental factors, a strategist should focus only on the relevant
factors for further analysis. All the factors are not equally important and affecting to the
business. In this context, a strategist has to scan the environmental trend to select only the
most affecting environmental factors from the information overload. This step paves the
way of environment analysis and forecasting.

Defining Variables for Analysis

Selected environmental factors are to be further specified into the variables. A concept can
be interpreted into different variables. For example, political situation can be measured
using few variables such as instability, reliability, and long-term effect. Economic
environment might cover many variables such as Per Capita, GDP, and Economic policies
that can be further classified into many other variables. Variables are the basis of
measurement in environmental analysis process. Variables can be compared, grouped,
correlated, and predicted to find the clearer picture of the broader concept. It is, therefore,
necessary to define the variables first in any kind of analysis including the
environmental analysis.

Using Different Methods, Techniques, and Tools

Different types of methods, tools, and techniques are used for analysis. Some of the
major methods of analysis can be Scenario Building, Benchmarking and Network
methods. Scenario presents overall picture of its total system with affecting factors.
Benchmarking is to find the best standard in an industry and to compare the one’s
strengths and weakness with the standard. Network method is to assess organizational
systems and its outside environment to find the strength and weakness, opportunity and
threats of an organization.

Some of the techniques of primary information collection can be Delphi, Brainstorming,

Survey, and Historical enquiry. Delphi technique collects independent information from
the experts without mixing them. Brainstorming is information collection technique being
open minded without criticizing others. Survey is to design questions and to ask
them to the participants whereas the historical enquiry is a kind of case analysis of past
period.

Analysis tools can be statistical such general descriptive tools as mean, median,
mode, frequency. Tools can be inferential as ANOVA, correlation, regression, factor,
cluster, and multiple regression analysis. There are many tools of analyzing functional
areas. Finance and accounting use mostly profitability, leverage, fund flow and other
similar accounting and financial tools for analysis. Human resources use employee
turnover, training, satisfaction and many others as the basis of evaluating strength
and weakness. Production area is assessed using quality control, productivity, breakdown,
and many others. Similarly, marketing effectiveness is judged from the sales volume and
market coverage. Research and development is perceived successful if it can really

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develop the strength in an organization.

Forecasting Environmental Factors

Collecting relevant information from the selected areas and to identify the variables
in such areas are the basics of analysis. Analyzing the past information to predict the
future is the main objective of this step. As discussed earlier, use of different methods,
techniques, and tools comes under the analysis process. It is, therefore, a
comprehensive process that analyzes collected information using different tools and
techniques.

Designing Profiles

After analyzing the environmental factors they are recorded into the profiles. Such
profiles record each component or variables into left side and their positive,
negative, or neutral indicators including their statement in the right side. Internal
areas are recorded in Strategic Advantages Profile (SAP) and external areas are
recorded in Environmental Threat and Opportunity Profile (ETOP). Strength,
Weakness, Opportunity, and Threat (SWOT) profile can be designed combining both of
these two profiles into one.

There are varieties of reporting formats or profiles used for external and internal
business environment analysis. Environmental Threat and Opportunity Profile (ETOP) is
commonly used to report the external environmental situation whereas Strategic
Advantages Profile (SAP) to report the internal environmental situation1. Both of these
profiles can be merged into Strength-Weakness-Opportunity-Threat (SWOT) profile.2
(See: annex...). David used External Factor Evaluation (EFE) Matrix to present weighted
score of external environmental factors. Similarly, he used Internal Factor Evaluation
(IFE) Matrix to make the reporting of internal environmental audit. (See: annex-...).
Whellen & Hunger used External Factors Analysis Sum mary (EFA S) and Internal
Factors Analysis Summary (IFAS) that are presented in annex- ....

Environmental threats and opportunities profile (ETOP) is a commonly used profile

related to external business environment. Strategic advantages profile (SAP) is related
to internal business environment. Nowadays, strength & weakness and opportunities &
threats (SWOT) profile has become very popular. Present writing pursued the
approach of reporting external and internal business environment using the same
approach.

Preparing ETOP

Environmental threat and opportunity profile is referred as ETOP profile. It identifies the
relevant environmental factors. Such factors might be general Environmental factors and
task environment factors. Thereafter, it is necessary to identify their nature. Some factors
are positive to the organization whereas others are negative. Therefore, it is necessary to

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find out their impact to the organization. Positive, neutral, and negative sign in ETOP
denotes the relevant impact of environmental factors.

Preparing SAP

Strategic advantage profile is known as SAP. It shows strength and weakness of an

organization. Preparation of SAP is very similar process to the ETOP. There are generally
five functional areas in most of the organizations. These areas are Production or
Operation, Finance or Accounting, Marketing or Distribution, Human Resource &
Corporate Planning, and Research & Development. These functional areas are listed
to identify their relative strength and weakness in SAP. Very similar to the ETOP,
positive, neutral, and negative signs are denoted and brief description is written in SAP
profile. Each functional area is very broad having many components inside.

All these above described profiles provide a clear picture to understand the strategic
position of an organization.

Strategic Position and Report Writing

After analysis of business environment a strategist knows the actual situation and can
make some future forecasting based on the environmental analysis. After preparing the
profiles strategists prepare formal report that describes the business environment. The
report might present issues and best strengths of business environment in a systematic
process. One can draw future strategies based on the strategic analysis followed.

In conclusion, a strategist or a manager first identifies the relevant environmental factors

then analyzes using different tools and techniques to find out the actual situation. This
overall process is sometimes known as SWOT analysis, environmental scanning,
environmental analysis, or monitoring-forecasting. This process is very important for a
manager to make his or her organization success by choosing the best available alternative
strategy.

Some Approaches of Specific Environmental Scanning

In this section, a brief discussion is made on the potential approaches, tools, and
techniques that are commonly used to analyze the sector wise business environment. The
sectors of business environment are external business environment, industry level
business environment, and internal business environment.

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Chapter II The Bangladesh Context

Recent developments

After its election victory in December 2008, the new government began its five-year term
in January 2009. Priorities include containing or reducing prices of essential commodities,
promoting agriculture productivity, generating employment and tackling the fall-out from
the global recession. Already the government has implemented measures designed to
check consumer price rises, has taken steps to increase agricultural subsidies, and provided
stimulus packages to sectors that are affected by the global recession.

Economy

Bangladesh has experienced continuous economic growth since the 1990s, although there
has been a decline in growth rates over recent years. Notwithstanding this trend, economic
shocks and natural disasters, growth in 2008 was 6.2%. The targeted growth rate in 2009 is
6.5%, although the World Bank and the IMF projections are lower. Macroeconomic
performance in 2009 will depend on how the financial crisis and recession impact on
export, remittances, domestic resource mobilization, capital markets, foreign aid and
foreign direct investment among others.

Agriculture

In the first half of 2009, weather conditions were favourable and government support to
the agricultural sector was strong. As a result, sector growth is expected to be 4.0%, up
from 3.6% in 2008. Good harvests of aman (monsoon) rice, maize, wheat, and potatoes in
2009 are being reported. The harvest of boro (dry season) rice crop is also on target. The
fisheries sector has also performed well during the same period.

The caretaker government supported broad-based agricultural growth to improve food

security, and the new government has affirmed its commitment to growth in this sector.

Industry
Growth of the industrial sector has decelerated in recent years. Production of large and
medium manufacturing industries registered only 6.9% growth in 2008. However, signs of
recovery were emerging at the end of the year. The government has taken steps to
formulate a new industrial policy, which is expected to outline strategies to promote small,
medium and large-scale enterprises. Some of key industrial development measures being
considered include:
• Promoting efficient management;
• Maintaining law and order;
• Eliminating corruption and administrative difficulties;
• Avoiding political influence;
• Creating an investment-friendly environment and a competitive market system;

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• Adopting innovative technology; and
• Providing infrastructure facilities to attract entrepreneurs and expand the domestic
Market.
The Government has focused on ICT, setting out a vision for a digital Bangladesh by
2020.

Donor assistance

The trend towards sector development continues in donor assistance, and emphasis is
shifting from firm level assistance to systemic change at the market level. In this sense
Katalyst can be seen as a pioneer. The project has the opportunity to share its experiences
and influence donor programmes. Katalyst has used the Market Development Forum
(MDF) to coordinate activities and realize synergies with other projects operating in
related areas. There will be a much stronger commitment to communication within the
development community in 2009-10. Some of the main projects are PRICE (funded by
USAID), BQSP (EU), PROGRESS (GTZ), BICF (DfID), and LEIC (CIDA).

Implications for the project

The new government brings both opportunities and threats for Katalyst. The stress on
agriculture and employment generation falls in line with the objectives of Katalyst, and the
government has also underscored the need for policy changes with regard to leasing of
public water bodies. Through the vision of digital Bangladesh, it is expected that work on
e-governance and e-commerce will see a renewed push.

The current involvement of Katalyst with government agencies like Soil Resource
Development Institute or Bangladesh Academy for Rural Development can be used as
platforms for forming partnerships with government. The next budget, to be announced in
June, is likely to emphasise public private partnership which could also bring new
opportunities for sector growth. Conversely the rivalry and bickering between the two
main political parties, the lack of trust in state institutions and the handling of law and
order situation could significantly impact not only the growth of various sectors but the
economy as a whole.

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Chapter III Starting a Business in Bangladesh
Figure 1: Country Profile

Entrepreneurs in Bangladesh do not need to put up any minimum capital to start a

business, but that is about all the relief they get. Bangladesh has a worldwide rank of 68
on the ease of starting a business. The process requires 8 procedures taking 37 days at a
cost of 88% of income per capita a decline from 94% in 2005. Within the region, only
Bhutan and India make start-up more burdensome. The greatest obstacle is cost, which is
higher in Bangladesh than in any other South Asian country. Only Nepal (where start-up
costs 79% of income per capita), Afghanistan (67%) and India (74%) are in a comparable
league. Elsewhere in the region it takes less than 22% of income per capita to start a
business (table 7).
TABLE 1: Ease of Starting a Business

Within Bangladesh start-up takes 30 days in both Khulna and Bogra and 37 days in Dhaka
and Chittagong. While all entrepreneurs have to complete all 8 proce-dures, the cost of
starting a business in Bogra, Khulna and Chittagong (62% of income per capita in each
case) is lower than in the capital city, Dhaka (88%).

Dealing with licenses

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Registration is only the beginning. Businesses then need to obtain an array of permits and
licenses to begin op-erating—a cumbersome process in Bangladesh. As an example it
takes 13 procedures and 185 days to obtain the permits and licenses to build a warehouse.
While the number of procedures is comparable to the OECD average (14 steps), and better
than the regional average (16 steps), the time to complete the warehouse licensing process
(185 days) is more than a month longer than the OECD average of 150 days. While the
cost of licensing (272% of income per capita) is almost three times the per capita income,
and much higher than the OECD average of 72%, it is lower than the regional average of
376%, which includes Pakistan’s cost of 973% and 606% for India. The three most
burdensome steps are obtaining project clearance from the Department of En-vironment
(30 days, costing on average $400), obtaining project clearance and the building permit
from the City Development Authority (75 days, costing $70) and ob-taining a power
connection (40 days, costing from $100 to $1,000 depending on the project size).

Obtaining a license in Chittagong and Bogra, espe-cially in the pre-construction period,

requires more pro-cedures (in total 15 and 14 procedures, respectively) but less time (150
and 146 days, respectively) compared with Dhaka (13 procedures in 185 days). The cost
of licensing in terms of percentage of income per capita is the highest in Dhaka (272%),
more than twice as much as in Chit-tagong (128%), Khulna (104%) or Bogra (115%),
mainly because of the cost of obtaining facilities from utilities authorities (about $760)
and a $400 fee to obtain project clearance from the Environment Department in Dhaka.

Employing workers

Bangladesh scores among the best in the region and ranks 75th worldwide on the ease of
employing work-ers. There is no variation for all indicators of employ-ing workers at the
sub-national level because the same national employment regulations apply throughout the
country. The cost of hiring is zero—there are no social security taxes or payroll taxes
associated with hiring a new employee. By contrast, in India, Pakistan and Sri Lanka the
cost of hiring ranges between 12 and 17% of salary. It is also relatively easy to fire a
worker in Ban-gladesh. Employers are not required to obtain approval from a third party
before dismissing one redundant worker or even for collective dismissal. There is no legal
requirement to retrain or replace workers prior to dis-missal. Only 1 month’s notice is
required and there is no legally mandated penalty for redundancy dismissal. Severance
payments can be costly though, amounting to 47 weeks. The rigidity of hours worked is
also quite low in Bangladesh. Until recently, trade union activity was not allowed within
export processing zones. The govern-ment has recently enacted a law allowing limited
trade union activities in the export processing zones.

Registering property

Bangladesh has a worldwide rank of 167 on the ease of registering property, among the
worst global rankings by any South Asian country on any of the Doing Business
indicators. It takes 8 procedures and 425 days to register property. By contrast in Nepal 3

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procedures are required and in Pakistan and India, 6. Sri Lanka also has 8 pro-cedures—
but the process there takes only 63 days. The cost of registering property is also high in
Bangladesh, at 10.5% of the property value compared to a regional average of 5%.
The longest delay is in registering the property at the municipal deed registry office, which
takes between 180 and 540 days. The buyer may obtain a certified registra-tion document
within a week, but obtaining the original certificate may require about 6 months to 1½
years, or even up to 2 years in some cases. By contrast, in Sri Lanka it takes only 36 days
to register at the land registry. In Pakistan, 38 days. In Nepal, it takes only 1 to 2 days for
registration of the deed at the land revenue office and issuance of a new title certificate.
Obtaining the permis-sion from the municipality office, the RAJUK, to transfer property
ownership, one of the early steps in the process, adds 60 days to the process in
Bangladesh. Verification of the record of rights from the land revenue office adds another
15 to 60 days.

The ease of registering property varies by city. While there are seven common registration
procedures throughout the country, for the land being developed by City Development
Authority (for instance, RAJUK’s development of model towns in Gulshan, Banani,
Barid-hara, Uttara and the Nikunja Residential Area) one additional step is required—
obtaining permission from the City Development Authority to transfer ownership of the
property—which makes the registration process in Dhaka lengthier and costlier than in the
rest of the country. In the case of Bogra and Chittagong it takes 391 days and costs 10% of
property value and in Khulna it takes 373 days and costs 9% of property value, compared
to Dhaka (425 days and 10.5% of property value).

Getting credit

Bangladesh ranks 48th worldwide and ahead of the South Asian average on the ease of
getting credit. There is no regional variation within Bangladesh. Although no private credit
bureau operates, a public credit registry functions reasonably well. Bangladesh scores 2
out of 6 on the credit information index at the same level as Nepal but behind Pakistan,
India and Sri Lanka. With a score of 7 out of 10, Bangladesh is the top performer in the
region on the index of legal rights for borrowers and lenders, higher than the OECD
average of 6. This high score is in large part a result of the Money Loan Court Act of
2003. The reform significantly sped foreclosure on collateral by introducing summary
proceedings and allowing credit institutions to sell collateral by public auction after giving
due notice to the defaulting debtors.

Further improvements are needed. It is estimated that 6 million households in the middle
category (small businesses, and small and marginal farmers), are too poor for the formal
banking sector and too rich for the traditional microfinance sector. Only 7% of one million
potentially eligible small businesses are currently served by the banking sector. Private
commercial banks cannot profitably serve this missing middle segment because they do
not have the appropriate products and processes to reach it. For example, a typical
application for a small business loan requires up to 29 steps, 9 meetings with the client and

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over 50 different documents totaling 200 pages. Such cumbersome procedures make it
very expensive for banks to lend money to small businesses. At the same time mar-gins in
the private banking sector are still sufficiently high that banks neither have to look for new
markets nor invest in developing new products and technologies.

Protecting investors

Bangladesh has a global rank of 15 on the protecting investors indicator—the top

performer in the South Asia region. As the indicator examines areas governed by national
legislation in Bangladesh, there are no differences at the sub-national level. Bangladesh
performs particularly well in the director liability index and shareholder suits index, which
measure the ease with which an investor can take directors and controlling shareholders to
court and win for violations of their duties to the company. Bangladesh also scores well in
the disclosure index and the investor protection index. On all four in-dices, Bangladesh
scores above the regional average and higher even than the OECD average, except on the
disclosure index (figure 2). There were no revisions to the investor protection regulations
between 2005 and 2006.

Figure 2: Protecting Investors in Bangladesh

Paying taxes

Bangladesh ranks 72nd worldwide on the paying taxes indicator. A typical business makes
only 17 tax payments per year, compared with 61 in Sri Lanka, 59 in India and 47 in
Pakistan. However, the time needed to comply with tax rules is very high, at 400 hours,
com-pared with 264 in India and 274 in Bhutan. At 40.3% of commercial profits, the total
tax burden is still relatively high although below the regional average of 45.1% and OECD
average of 47.8%. In Nepal, for example, the total tax burden is only 32.8% of commercial
profits

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Trading across borders

Bangladesh ranks 134th on the ease of trading across borders, well below the regional
average. It takes 16 documents and 57 days to import, the second longest time among the
South Asian countries after Afghanistan with 88 days. Exporters are relatively better off,
requiring 7 documents and 35 days, comparable to Nepal (44 days) and Bhutan (39 days).
The key export sector—garments, which account for nearly three-fourths of exports—can
clear exports much faster. Even imports meant for the garments sectors clear much faster
than average. In Bangladesh the total cost to import totals $1,287 per container, cheaper
than Afghanistan ($2,100), Nepal ($1,800) and Bhutan ($1,950), but more expensive than
Sri Lanka ($789) and Pakistan ($1,005), and comparable to India ($1,244). The cheapest
port at which to import is Dhaka, at $829 per container, while the most expensive is Bogra
($979). It is cheapest to export from Chittagong ($553) due to its proximity to a seaport,
and the costliest to export from Dhaka ($607).

Enforcing contracts

Enforcing a contract in Bangladesh is the most cumbersome of all countries in the region.
It requires 50 procedures and about 4 years (1,442 days) to enforce a contract, compared to
20 procedures and 837 days in Sri Lanka (figure 2.4). Costs amount to 46% of the claim,
compared to 21% in Sri Lanka.

Though there is little difference among the various cities of Bangladesh in terms of the
procedures for en-forcing contracts, Dhaka is the most expensive (46% of claim) due to
the high attorney fees and takes the second longest time (1,442 days). It is comparatively
less expensive in Bogra and Khulna (about 40% of claim) due to lower attorney fees, but
takes the longest in Bogra (1,790 days), due to a 4-month delay in filing the lawsuit, as op-
posed to only a week in Dhaka.

The government introduced major reforms in the Civil Procedure Code in 2003. Delays
are showing signs of improvement, but the reforms have yet to give the desired results.
Two recent reforms have improved the judicial system. The Money Loan Court Act of
2003 set up a special court to deal exclusively with loan defaults exceeding 5 lakhs,
prescribed time limits for granting judgments and imposed restrictions on appeals.

Closing a business

Bangladesh is in 3rd place among its South Asian counterparts when it comes to the ease
of closing a business— after Pakistan and Sri Lanka—and 93rd place worldwide. It takes
4 years to go through bankruptcy proceedings, significantly lower than the 10 years it
takes in India. But that is little comfort as global best practice is 0.4 years (Ireland) and
regional best practice is 2 years (Sri Lanka). The cost of insolvency is 8% of the estate
value and the recovery rate for claimants is 25%.

While in Dhaka it takes 4 years to go through bankruptcy proceedings with a cost of 8% of

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the estate value, there have been less than 60 bankruptcy cases in Chittagong, Khulna and
Bogra in the last 20 years. Therefore these cities score “no practice” on the Doing
Business closing a business indicator.

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Chapter IV Business Competitiveness Environment in

Bangladesh: Global Comparison

As would be expected, as an LDC Bangladesh has many constraints in terms of doing
business. This state of affairs is reflected in the perception survey. On the other hand,
overcoming such constraints is also critically important if Bangladesh is to stimulate
development. It is also important that policymakers, corporate bodies, and development
partners should know where Bangladesh is situated with respect to competitiveness in the
global context. One underlying objective of this exercise is to find out major areas where
Bangladesh is relatively weak/strong when compared to other countries.

Growth Competitiveness Index (GCI): Bangladesh among

the Lowest Performers

Since its incorporation in the GCR exercise, Bangladesh has ranked consistently among
the bottom ten countries of the world. Most of the LDCs are ranked at the bottom of the
GCI index which implies that LDCs have serious lacunae in terms of level of technology,
public institutions and macroeconomic environment. The following section discusses
these issues in a more comprehensive manner.

TABLE 2: Bangladesh in the Global Ranking

Indices GCI 2004 GCI 2005
GCI Rank 102 110
Technology Index 100 101
Innovation sub-index 95 105
ICT sub-index 101 112
Technology transfer sub-index 58 59
Public Institutions Index 104 117
Contracts and law sub-index 97 104
Corruption sub-index 104 117
Macroeconomic Environment Index 74 83
Macroeconomic stability sub-index 62 67
Country credit rating 79 86
Government expenditure/waste 75 85

Source: Global Competitiveness Report, 2004 and 2005.

In 2004, Bangladesh was ranked 102 out of 104 countries in terms of GCI ranking.
Compared to the ranking in 2004, Bangladesh’s rank has experienced further
deterioration in 2005. Out of 117 countries (including 13 new countries) Bangladesh’s
position was downgraded to 110. It is important to note that competitiveness in the global

17 | P a g e
market is always changing and is dynamic in nature. If the comparison was made with the
same set of countries that were covered by 2004 GCR Survey, Bangladesh’s ranking
would only marginally improve (101 in 2005 compared to 102 in 2004). This would also
indicate that many new entrants to the survey were better performers than Bangladesh (e.g.
Mongolia, East Timor, Tajikistan).

Table 3 shows the GCR ranking of South Asian countries. Compared to the other three
counterparts covered under the GCR, Bangladesh remains at the bottom in terms of GCI
index. While India continues to remain at the top of the order, Pakistan has managed to
make some visible improvements in its GCI rankings. On the other hand, Sri Lanka has
slid to the 98th rank from its earlier position of 73 in the GCI 2004.

TABLE 3: GCR Ranking of SOUTH ASIAN Countries

Bangladesh’s Ranking in terms of Macroeconomic

Performance Index

Bangladesh’s global competitiveness originates mainly from relatively better

macroeconomic condition compared to other LDCs and some of the developing countries.
In 2004, Bangladesh’s rank in the macroeconomic sub-index was 74, which meant that a
number of LDCs and developing countries lagged behind Bangladesh. However, the
ranking in macroeconomic sub-index deteriorated in 2005 (83). In terms of
macroeconomic issues such as macroeconomic stability, country credit rating and
government expenditure/waste, Bangladesh’s performance showed deterioration in 2005.
Macroeconomic stability index stood at 67 in 2005 rising from 62 in 2004, although in
terms of value of the index there was some improvement in 2005 (4.36) compared to 2004
(4.27). Bangladesh’s global comparison of the macroeconomic performance will be
discussed in some more detail when issues related to macroeconomic aspects are analyzed
in the next section.

Bangladesh’s Ranking in terms of Technological

Development Index

Bangladesh’s performance is not very promising in terms of technological development.

This is corroborated by the fact that Bangladesh’s position in terms of technological index
was 100 in 2004 which remained almost at the same level in 2005 (101). In terms of

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innovation, Bangladesh was ranked among the lowest group of countries in 2004 (95)
which further deteriorated in 2005 (105). Curiously, about 3% improvement was observed
in 2005 over 2004 in terms of value of the index. As regards ICT, the subindex has
substantially fallen both in rank (from 107 to 112) and in value (1.81 to 1.73). The
only area where Bangladesh has performed better was in technology transfer index (58
and 59 in 2004 and 2005 respectively). It seems that increasing foreign investment in
different sectors, especially in petroleum and gas exploration, telecommunication, RMG,
etc., has contributed to some extent to transfer of technology in the country.

Bangladesh’s Ranking in terms of Public Institution Index

As regards the public institution index, Bangladesh’s ranking is at the bottom for both the
years under consideration (104 in 2004 and 117 in 2005). This owes mainly to the
dramatic deterioration in the corruption index. The contracts and law sub indices of the
country have also witnessed deterioration (from 97 in 2004 to 104 in 2005). However,
in both these sub indices, some positive development was observed in terms of value –
value of corruption sub-index improved by about 1.4% and contracts and the law
sub index value substantially improved by 4.4% (Table 4). It implies that the pace of
improvement in the public institutions that occurred in 2005 lags behind public
institutions in other countries.

TABLE 4: Change in Bangladesh’s GCI Scores (2005 VS 2004)

2004 2005 % change in 2005
over 2004
GCI Score 2.84 2.86 0.70
Technology Index 2.62 2.60 -0.76
Innovation subindex 1.57 1.61 2.55
ICT subindex 1.81 1.73 -4.42
Technology transfer subindex 4.05 4.10 1.23
Public Institutions Index 2.47 2.55 3.24
Contracts and law subindex 2.76 2.88 4.35
Corruption subindex 2.19 2.22 1.37
Macroeconomic Environment Index 3.42 3.43 0.29
Macroeconomic stability subindex 4.27 4.36 2.11
Country credit rating 2.42 2.30 -4.96
Government expenditure/waste 2.72 2.68 -1.47
Source: Global Competitiveness Report, various issues.

The perception scores, as evinced by various GCI indicators, leave room for some
optimism though. GCR shows that while Bangladesh’s score in the technology index has
registered a negative change (–0.70% in 2005 as against 2004), the change was positive in
other two indices, i.e. 3.24% in the public institutions and 0.29% in the macroeconomic
environment. Nevertheless, it needs to be kept in mind that these minor improvements
have failed to contribute towards improving the country’s overall ranking.

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Business Competitiveness Index (BCI): Deteriorated
Performance

In terms of BCI or business competitiveness index, at the aggregate level, Bangladesh has
slid down in 2005 as against the previous year. The WEF’s GCR dealt with BCI in two
different forms. Firstly, a hierarchical ranking had been drawn for all the countries (the
complete sample), and secondly, and probably more interestingly, another set of ranking
was placed only for those countries that virtually met all the criteria to be considered
under the BCI ranking. It is, therefore, imperative to be cautious about these rankings.
Table 4 shows Bangladesh’s ranking in terms of BCI components.

TABLE 5: Bangladesh’s Ranking in terms of BCI

In 2004, Bangladesh’s rank in terms of BCI was 87 out of 104 countries, implying that
business competitiveness was in the same tune as growth competitiveness. In 2005
Bangladesh’s competitiveness strength deteriorated further and its rank was 100 out of 117
countries. The performance at individual sub-indexes such as sophistication of company
operations and strategy index, and quality of business environment index was also poor
with a 17.4% negative change in terms of the latter index.

Among the South Asian countries, Bangladesh’s performance has consistently been the
worst and more importantly the level of deterioration has been higher for Bangladesh
compared to other countries (Table 5). As for India, it managed to continue being at the
top position among the regional members while Pakistan has managed to make remarkable
improvement in its ranking. On the other hand, Sri Lanka’s performance has slightly
deteriorated in 2005 as against 2004.

TABLE 6: BCI Ranking of SOUTH ASIAN Countries

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Bangladesh’s Ranking in terms of Sophistication and
Company Operation Index

In terms of sophistication and company operation and strategy, Bangladesh’s rank was 89
in 2004, but it slid down to 99 in 2005. It appears from the survey that the country’s
position became weaker in terms of such indicators as market access, capacity for
innovation, control of international distribution, degree of customer orientation, extent of
marketing, extent of regional sales, nature of competitive advantage, production process,
sophistication, value chain presence, etc. In a fast globalizing world these weaknesses are
bound to have a detrimental impact on Bangladesh’s relative situation in terms of
competitive strength.

Bangladesh’s Ranking in terms of Business Environment

Index

As per this particular index, Bangladesh has experienced a substantial fall in ranking in
2005 (101) when compared to 2004 (86). This implies that major factors that make up
business environment have performed poorly in the country. These included quality of
physical infrastructure, quality of administrative infrastructure, quality of human
resources and technology infrastructure, development of capital markets, sophistication,
local suppliers’ quality, efficiency of corporate bodies, intellectual property protection,
intensity of local competition, effectiveness of antitrust policy, prevalence of trade
barriers, etc. A thorough analysis of the aforesaid issues has been presented in the next
section.

As regards both the sub-indices of the BCI index, Bangladesh, in 2005, captured the 97th
position among the 110 sample countries that successfully passed through the regression
analysis for the GCR. Between the two, quality of business environment has dropped by
11 positions while sophistication and company operations and strategy subindex came
down by 8 positions when compared to those of 2004. It is evident from the above
discussion that Bangladesh still has a long way to go if it is to improve its Business
Environment Index.

Bangladesh’s global ranking in GCI and BCI indicates that there are some inherent
structural weaknesses in the country’s macroeconomic and technological performance
and public institutions as well as in company operations and strategy. A thorough and an
in-depth analysis is required to understand the competitiveness from the domestic point of
view. The perception survey conducted by CPD covering the top business executives of
the country has attempted to shed light on these issues.

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Chapter V Competitiveness Environment in

Bangladesh: Domestic Perception

In the Executive Opinion Survey, country’s leading business executives have identified
lead determining factors from a list of fourteen factors that inhibit development of an
enabling business environment in Bangladesh. Examining the values of the lead
determining factors for different years, the relevant factors have been split into two
groups, namely, first order lead factors and second order lead factors. The first order lead
factors comprised top six factors, ranked according to the index value, while the rest eight
factors composed the second category. Interestingly, the same set of six factors was
identified as the first order lead factors by the respondents for both the years (i.e. 2004 and
2005); however, some changes were seen in the order of the factors (Table 6).

The six first order factors are: corruption, inefficient government bureaucracy, inadequate
supply of infrastructure, crime and theft, access to financing, and policy instability. The
very nature of these factors indicates that these have overwhelming influence on
governance and infrastructure facilitation issues. On the other hand, the second order lead
factors focus mainly on the economic (fiscal and monetary) and labour force related
issues. The sum of the index values of the first order lead factors for 2005 is 83.4 out of
100.0 (for all fourteen factors), while it was 84.4 in 2004, 83.8 in 2003 and 78.5 in 2002.
These figures justify the classification of factors into first and second order lead factors.
This helps to priorities the factors and address the major hindrance caused by these factors
to develop an enabling business environment in the country.

TABLE 7: Rank of Lead Determining Factors

2004 2005
Rank Factors Value Factors Value
1 Corruption 24.6 Corruption 24.7
2 Inefficient govt. bureaucracy 14.8 Inefficient govt. bureaucracy 16.9
3 Crime & theft 12.6 Inadequate supply of infrastructure 13.6
4 Inadequate supply of 12.3 Policy instability 11.5
5 infrastructure
Access to financing 10.3 Crime & theft 10.8
6 Policy instability 8.8 Access to financing 6.9
Second Order Lead Factors
7 Inadequately educated workforce 4.2 Govt. instability/coups 4.5
8 Govt. instability 2.8 Inadequately educated workforce 2.6
9 Tax regulations 2.4 Tax regulations 2.5
10 Poor work ethic in national labour 2.1 Poor work ethic in national labour 1.9
11 forcerates
Tax 1.9 force currency regulations
Foreign 1.3
12 Foreign currency regulations 1.5 Tax rates 1.1
13 Inflation 0.9 Inflation 0.8
14 Restrictive labour regulations 0.7 Restrictive labour regulations 0.7
Total 100 100
Source: Global Competitiveness Report, various issues.

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An in-depth analysis of the lead determining factors underscores that corruption and
inefficient government bureaucracy have continued to be the top two factors for all the
four years. Crime and theft was identified as the third and fifth lead determining factor
respectively in 2004 and 2005. Interestingly, this was ranked sixth in both 2003 and 2002.
While upward movement of crime and theft in 2004 as against 2003 indicated growing
concern of the business community as regards the adverse impact of the deteriorating law
and order situation of the country on the overall business environment and
competitiveness of the country, the fact that it slid down two positions in 2005 indicates
some sign of relief; however, concerns still remain as this factor continues to be among
the first order lead factors. Ranking in terms of inadequate supply of infrastructure has
deteriorated further in 2005 and climbed one step up to the third position. Besides, policy
instability has moved from its earlier position (from 6th in 2004 to 4th in 2005) and has
become an issue of much concern to the business community. Thus, the above discussion
indicates that business executives have acknowledged some marginal changes in terms of
stability and coherence of government policies, which needed to be improved
substantially in order to have any direct or indirect positive impact on business
environment of the country.

In the case of the second order lead factors, government instability led the way both in
2002 and in 2005 with index value of 6.1 and 4.5 in the two respective years. Other major
factors are inadequately educated workforce, tax regulations, and poor work ethic in
national labour force, foreign currency regulations, restrictive labour regulations, tax rates
and inflation. In 2004, inadequately educated workforce took the lead, followed by
government instability. Because of the improvement in macroeconomic management of
the country over the last few years, the business executives thought that factors such as
inflation, restrictive labour regulations, foreign currency regulations and tax rates did not
have much of a negative impact on the business competitiveness environment in
Bangladesh and these four second order factors remained at the bottom of the list during
the two years under consideration. However, as is known, subsequently there has been a
rise in the prices, both for domestic and global factors.

In a nutshell, business executives identified the prevailing poor governance scenario as

the main impediment to attaining competitiveness in Bangladesh. Besides, poor
infrastructural facilities, lack of skilled labour force, weakness in macroeconomic and
financial management were identified as some of the other stumbling blocks impeding
enhancement of private sector business operation in the country. Following sections
analyse these factors, based on the perceptions expressed by the business community in
the country, under the broad categories of public sector, technologies, infrastructure,
human resource, financial management, company operations and strategy, environment,
etc. Response scenario for these indicators has been presented in the Annex. It is hoped
that such an analysis will help to understand the strengths and weaknesses of these factors
and help to formulate policies that may enhance business competitiveness in the country.

23 | P a g e
Government and the Public Sector: Downgraded
Competencies and
Burdensome Policies

The business community has been expressing its dissatisfaction as regards the gulf of
difference between government’s private sector-led industrial policy and its very poor
supportive role that does not match the government’s declared policies. The level of
competencies of the public sector, set out in various indicators, failed to reach a minimum
acceptable level. Country’s ineffective parliament, financial dishonesty of politicians,
wasteful public spending, complex tax system, burdensome administrative requirement
and nepotism are not in line with the government’s so-called supportive role in a
liberalized regime. There have been some interesting shifts in the composition of various
blocs and also in the relative percentage in response; however, the “worse/downgraded”
scenario for majority of the indicators continued to prevail in 2005. Figure 1 shows the
level of weighted response of all indicators for two years. Apart from some marginal
improvements for a few, most of the indicators have suffered deterioration in 2005.
Response scenario for various indicators has been presented in the Annex.

24 | P a g e
 Figure 3: Performance of Government and Public Sector

Public Institutions: Weak, Inefficient but Slowly

Approaching to Average Level

Businessmen have hardly any disagreement regarding the weak performance and
inefficient services of the public institutions, which substantially increase business costs
and reduce country’s business competitiveness in the global market. More than three-
fourths of total respondents expressed their dissatisfaction with all issues related to public
institutions, although in a relatively less strong way in 2005 than they did in 2004. A
significant worsening of the perception has occurred in 2005 compared to the previous
year, especially in cases such as property rights, media censorship, police service, and
organized crime, public contracts in investment projects, judicial decision and illegal
payments to influence government policies.

Infrastructure: Poor, Underdeveloped but Some Sporadic

Improvement

More than 80% of country’s top business executives thought that infrastructure was
poorly developed and was not conducive to conduct businesses. Although a slight
improvement is observed in different infrastructure facilities, those remained much below
the average standard. Figure 3 shows that the only improvement in infrastructure is in
mobile using pattern, while a gloomy scenario continues to prevail as regards use of
Internet at the school level.

Poor port facilities and underdeveloped inland waterway add significant cost for the
businesses, especially in terms of failure to reduce lead time for supply to the

25 | P a g e
international market. The port facilities especially the time for loading and unloading,
customs facilities, container facilities, etc. have to be considerably improved in order to
improve the lead time.

Because of poor development of domestic inland waterways, businessmen often fail to

get the facility of low cost transportation through waterways, thus bear the extra cost
of transporting through road. Bangladesh has the potential to use intra-regional waterways
by developing India-Bangladesh common waterways, which would open scope for
transporting at a very low cost. Railway, an effective means of transportation, is highly
underdeveloped.

Technology: Backward especially in ICT

More than 85% of the country’s top business executives agreed that the level of
technological readiness generally lags behind most other countries. Companies have
increasingly faced competition in the global market and were forced to use technology
intensive production techniques more in order to retain their competitive advantage. With
a poor technological base in the country, especially in terms of application of new
technologies, availability of scientific research, application of ICT, etc. companies are
bound to suffer in the long run because of inability to compete with their old-fashioned
technological practices.

There is very little disagreement among business leaders about government’s weak policy
emphasis in the area of application of ICT. More than two-thirds of total respondents in
2005 have shown some dissatisfaction as regards government programmes for promoting
the use of ICT. Government services in such areas as payment of personal tax, car
registration, passport, business permit and e-procurement are not available online. This
was assessed by businessmen as highly negative. Access to such services online would
substantially reduce transaction cost and other undocumented costs that are currently
borne by businessmen.

Human Resources: Scarcity of Skilled Professionals

As perceived by the top business executives, there is a wide dissatisfaction about the
quality of human resources in the country. Bangladesh’s development prospects are
severely constrained due to lack of proper vision with respect to human resource
development. Indeed, businesses will not expand unless there is skilled manpower
available in the country. At present the educational system does not meet the needs of a
competitive economy. Traditional educational policy which is hardly demand-driven is
adversely affecting the task of building the required skilled personnel in the business
sectors. Figure 5 shows that some improvements were observed during the last couple of
years in this respect. However, uneducated workforce is still considered to be one of the
major factors impacting negatively on country’s business environment.

26 | P a g e
Business leaders noted that scientists and engineers are not available as were needed in
view of growing demand emanating from industrial and commercial activities in the
country. More importantly, country’s potential skilled people are increasingly migrating
to other places for better wage and living standards. As a result, businesses are suffering
from lack of skilled personnel.

Finance and Openness: Strengthen the Corporate

Governance Practice

Most of the businessmen considered the level of sophistication of financial markets lower
than the international norms, but at the same time they observed some positive changes in
various indicators over time. Some improvements are observed in terms of such indicators
as banks’ sound balance sheets, easier way of collecting money through capital market,
improvement of money laundering situation, environment for foreign direct investment,
etc. However, significant improvements are required in the case of credit distribution
system, availability of venture capital, financial auditing and reporting standards, etc.
Companies need to focus more on corporate governance in order to establish a strong
footing in the local market at a time when international orientation of local businesses is
becoming increasingly necessary.

Company Operations and Strategy: Further Improvement

Needed

Company operations and strategy are below the average standard, this adversely affects
their competitiveness in the global market. However, companies are increasingly
developing their operational strategy because of intense pressure from the global business
players. Instead of traditional comparative advantage in natural resources, low cost
labour, companies are trying to focus more on market access, diversification of export,
improvement of marketing system, and efficient management system, etc.

Impediments for Doing Business in Bangladesh

∗ Lack of consistency and continuity of Policies

∗ Lack of care for the existing foreign investors

∗ Lack of industrial development policy
∗ Poor coordination among the concerned agencies
∗ Pressure from the politicians
∗ Absence of the mechanism for solving commercial disputes
∗ Corruption
∗ Slow processing of official matters
∗ Delay in issuing work permits (-+ improved)
∗ Delay in issuing multiple entry visa (--> improved)
∗ Customs clearance
∗ Immigration procedure at the airport (-> improved)

27 | P a g e
 ∗ Delay in the settlement of L/C Payment
∗ For any government purchase, frequent incidents of Re-Tender and the slow
process
∗ Insufficient electricity
∗ Poor telecommunication, often disconnected
∗ Not enough gas supply & pressure
∗ Not enough water supply, especially in Chittagong EPZ
∗ Chittagong Port is not efficient
∗ Roads are not good enough
∗ Holidays do not match with the world
∗ Labour Union too politically involved
∗ Hartal is detrimental to all economic activities
∗ Non-availability of statistics
∗ Law & Order Situation (Security)

28 | P a g e
Chapter VI Conclusion and Policy Recommendations
Poor performance of country’s overall competitiveness in the global context has
continued in 2005. In view of this, pragmatic actions need to be taken in order to improve
the competitiveness of the country’s business environment. One significant aspect,
derived from the CPD survey, was that the threat of terrorism imposes significant cost on
business and if it is not checked, it would create a real problem for the country.

The Executive Opinion Survey identified a number of areas where Bangladesh needs to
improve in order to become competitive globally and within the country itself. Based on
the finding reported here and focusing on the present condition of business
competitiveness in Bangladesh, a set of policy recommendations has been formulated and
presented below.

Government and the Public Sector and Public Institutions

The overall perception in terms of administrative inefficiency and ineffectiveness of

national parliament continued to remain overwhelmingly negative. Overall composition
of public spending is wasteful. The situation as regards grafts has further deteriorated, so
has been the case with illegal payments to influence government policies, laws,
regulations, and diversion of public funds to favoured companies. It is, therefore,
imperative that the government ensures effective operationalisation of the Anti-
Corruption Commission, sets up an ombudsman agency and implements and monitors
governance-related indicators mentioned in the poverty reduction strategy paper (PRSP).

There was a tangible improvement in terms of incidence of common crime and violence.
The reliability of police service, although still at a very low level, moderately improved in
2005. This, to an extent, has happened due to the introduction of the Rapid Action
Battalion (RAB). However, the events that occurred in the months following the survey
might worsen the negative perception about overall security situation. It is found that
judicial system in the country is heavily influenced by political interference. It is
recommended that the government immediately separates the judiciary from the executive,
simplifies procedures, and introduces effective mechanisms to ensure transparency and
accountability of the judiciary.

Infrastructure and Technology

Country’s technological readiness and infrastructure lag behind most other countries.
Rail, road, port facilities and inland water ways are still highly underdeveloped. The
electricity supply is of poor quality. Air transport system is inefficient and further
deteriorated in 2005. It is suggested that public investment in infrastructure development
should be of highest priority. Development of domestic infrastructure of the country
should be properly linked with regional transport network in order to reap the benefit of
enhanced intra-regional investment and trade. Public-private partnership would also

29 | P a g e
facilitate establishment of improved transport network in the country.

Lack of vision and mission are major stumbling blocks for ICT development in the
country (e.g. poor ICT laws, poor use of ICT in government offices and other public
services). There is very limited access to internet in schools. However, some sporadic
improvements have been observed due to competition among ISPs and service of mobile
telecommunication system. Increasing competition in internet service ensured some
improvement in quality of services, infrequent interruptions and low prices. Mobile or
cellular telephones are accessible and affordable as in the world’s most technologically
advanced countries. In this case, government should immediately enact ICT laws and
implement it at all levels. Government should promote the use of ICT starting from the
school level to the higher administrative level. The use of on-line procedures for
government services can reduce bureaucratic delays and discretion, as well as increase
speed and consistency of service. By facilitating automation in public institutions, the
discretionary exercise of authority by government officials and potential for unofficial
costs can be reduced significantly.

Human Resources

The quality of public schools is very poor and these fail to meet the needs of
competitiveness of the economy. Mathematics and science education lag behind most of
the countries, although some marginal improvement was observed in 2005, presumably
due to introduction of Math Olympiad and other initiatives in the country. On the other
hand, there is a negative effect because of brain drain from the country. Education system
needs to be thoroughly revised in line with country’s future needs, emphasising more on
science, business studies and other potential areas.

Labour–employer relation has improved in 2005. Gender discrimination in the context of

wages in the workplace, and arbitrary determination of wages by individual companies
are still continuing. Human resources management and compensation practices in the
public sector should be modernised. Wages of public sector workers are extremely low
and every effort should be made to enhance wages, but should also be based on
performance.

Finance and Openness

Money laundering situation has improved perhaps due to strict monitoring mechanism
followed by the central bank. There are some positive changes in the practice of corporate
governance, but needs further strengthening. Positive changes have been observed in the
case of the interest of minority shareholders, but poor performance was seen in auditing
and reporting. For effectiveness of financial services and its openness, the government
needs to streamline regulations, accelerate service delivery, and reduce the scope of
informal payments. Procedures for the entry of new firms could be simplified, for
example, by reducing unnecessary costs and delays and encouraging informal firms to

30 | P a g e
enhance their legal status and, thus, improving their access to finance.
Domestic Competition

An increasing number of businessmen were apprehensive as regards lax and ineffective

anti-monopoly policy which negatively impacts on the business environment. Corporate
activity seems to be dominated by a handful of large firms. Although standards of
products service were found to be very poor, some significant changes were observed in
perception perhaps due to increasing awareness about the quality of products/services.
The number of local suppliers is increasing and their quality is improving, which
indicates sophistication of producers and consumers. Clusters are few but developing.
Government should take appropriate policies and budgetary measures to develop clusters,
and ensure technical support to improve quality of products to be competitive in the
international market.

Company Operations and Strategy

Major factors that contribute to competitiveness in the international markets are low cost
labour and natural resources. Production processes primarily use labour intensive
methods, but a significant improvement has been observed in 2005. Ownership and
control is slowly but increasingly shifting from foreign companies towards local
companies. In terms of corporate governance, there is a lack of accountability of
management to the investors and Boards of Directors. Recruitment process has improved,
instead of recruiting relatives, senior management positions are being filled up by
qualified personnel. Companies are gradually becoming responsive to customers and the
need for customer retention. In order to improve the corporate governance, Security and
Exchange Commission (SEC) needs to set new regulations for all listed companies and
regularly monitor the practices followed by these companies.

Environmental and Social Responsibility

There is a strong negative perception as regards environmental regulations of the country.

Environmental regulations are lax, confusing and enforced erratically, although there are
some signs of improvement. Corporate codes and social responsibility are rare or non-
existent. Businessmen considered that complying with environmental standards
significantly reduced competitiveness in the country. Companies were increasingly
considering cleaner production, material flow management, waste reduction, recycling
and life cycle management as important factors. These would have positive impact on
business competitiveness in the global market.

There is no denying that implementation of reform measures and/or amendments to

existing policies depend, to a great extent, on the government’s positive attitude towards
improvement of business environment in the country. If the government seriously
considers the current situation of business competitiveness in the country and adopts
appropriate measures, the state of business competitiveness is sure to see some significant

31 | P a g e
positive changes in the medium to long run

32 | P a g e
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• FILE :///N:/B%20U/ ASSIGNMENT %20 SEARCH /HOME . ASPX . HTM

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