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On Wednesday, a Singapore minister declared that Bhutan is not the Shangri-La on earth.

Minister Khaw Boon Wan told the Singapore parliament that the much publicized romantic version of the Himalayan kingdom does not fit the ground realities in Bhutan.

Speaking from his experience of having visited Bhutan, he said “Most of the time, I saw unhappy people, toiling in the field, worried about the next harvest and whether there would be buyers for their products.”

The National Development Minister also added that the Bhutanese are more in awe of what Singapore has achieved. “In their (Bhutanese people’s) minds, Singapore could well be the Shangri-La and they want Bhutan to emulate Singapore.”

Minister Khaw Boon Wan said, “They (Bhutanese people) have studied us because Singapore is also a tiny nation, living next to big neighbours.” He added “Against all odds, we have done well in the last 50 years when we had so little” and said “We have successfully transited from third world to first, and managed to create a functioning and harmonious society for our people.”

Leaving the Shangri-La debate aside, Minister Khaw Boon Wan got a moral boost with the release of a World Bank report titled “Doing Business 2012” which rates Singapore as the friendliest country for doing business.

While Singapore tops the list, Bhutan is a distant 142 out of 183 countries rated.

A business friendly economy is also a combined result of having an efficient legislature, a corruption free bureaucracy, and an efficient system in place. Such an organized structure also ensures the citizenry to avail their civilian and constitutional rights without much hassle. Under such a scenario, Bhutan can indeed take a cue from Singapore and Minister Khaw Boon Wan may have a strong point in making his assertion.

The World Bank report also shows that Bhutan has much homework to do because a rank of 142 has nothing to be proud of despite local media reports highlighting Bhutan as having climbed the ladder by four ranks from 146 last year.

The overall business friendliness rank of a country is evaluated based on how easy or difficult it is for locals to open up and run small to medium businesses by complying with regulations.

Each economy is ranked under 10 lifecycles affecting a business: starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting  investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The final business friendliness rank is an aggregate of the above 10 ranks.

Bhutan moves up to 142

Bhutan has moved up by four ranks from 146 last year to 142 this year.

The improvement can largely be attributed to the huge progress in the rank of “getting credit” to 126 from 170 last year. This movement of 44 ranks upwards is the biggest positive development reflected in the Report.

The notable improvement in getting credit comes against the backdrop of the entry of two new commercial banks in the market and the only development bank having started commercial operations.

The central bank has also facilitated credit facilities by improving the credit information system for banks which has fastened the procedural time required to get loans.

The only other positive increase in rank was by one place from 84 to 83 under “starting a business.” It means a slight improvement in the ease to start new businesses.

The Report also authenticates the various complaints emanating from the construction sector because the biggest slump in rank has been in “dealing with construction permits” at 135 which is seven ranks lower than 128 noted last year.

Compared to last year, Bhutan also fell in rank by one to three places in getting electricity, protecting investors, paying taxes and trading across borders.

There was a virtual stagnation with no change in ranks for registering property, enforcing contracts, and resolving insolvency.

Among the ten business lifecycles determining business freedom, Bhutan is ranked before 100 only in four indicators.

The best rank is enforcing contracts at 35, followed by paying taxes at 67, staring a business at 83, and registering property at 83.

From the indicators, Bhutan is ranked lowest for resolving insolvency at 183. It is followed by trading across borders at 169, protecting investors at 147, getting electricity at 145, dealing with construction permits at 135, and getting credit at 126.

The low rank of getting electricity at 145 can be described as an anomaly in a country that boasts of the power sector contributing the highest revenue to the national exchequer.

Bhutan better only to Afghanistan in south Asia

While Bhutan’s low rank of 142 is nothing to boast about, its ambition of being a business hub in the region is also severely stunted in relative comparison to other SAARC member countries.

Bhutan is ranked better only to war-torn Afghanistan ranked 160, 18 places below Bhutan. It was the same last year.

The climate-change threatened archipelagos nation of the Maldives is the best SAARC nation for business according to the Report at 79.

In second place is its neighbor, Sri Lanka, ranked 89.

Giving the US all the more reason to straighten out its ongoing straining relations with Pakistan, it is the third best SAARC country for business ranked 105.

Buoyant under a new prime minister, Nepal is the fourth South Asian business friendly country ranked 107.

The regional average rank for SAARC member countries is 117 and only the four top countries are better ranked than the average.

The low average rank of 117 also explains why South Asia, despite being one of the most populous regions in the world, has failed to exploit the pregnant regional business potential.

The fifth in the list is Bangladesh, one of the only SAARC countries making conscious efforts to capitalize on regional trade. It is ranked 122, ten places better than South Asian giants, India.

It is then followed by Bhutan with Afghanistan completing the list.

Best countries for business

While Singapore tops the list for being the best country to do business, different countries top the list under its 10 different business facilitating indicators.

Singapore also offers the most conducive atmosphere to trade across its borders.

New Zealand is the best country to start a business and in protecting its investors.

Hong Kong, China, is the best while dealing with construction permits.

It is easiest to get electricity for business purposes in Iceland and this is reason enough for Bhutan to look toward the European island nation with a population of less than half of Bhutan.

Registering property is easiest in Saudi Arabia. It is easiest to get credit facilities in the United Kingdom.

SAARC member, the Maldives, facilitates business people the best in the world while paying taxes.

Despite ranked 50 overall, Luxembourg offers the best atmosphere for the business community to enforce contracts.

Not surprisingly, Japan is the best in resolving insolvency.

Overall, the best five countries for business are Singapore, Hong Kong, New Zealand, United States and Denmark.

The worst country for business in the world is the Republic of Chad. The central African country bordering tumultuous Libya is also referred to as the “Dead heart of Africa” due to its distance from the sea and its largely desert climate.

The other bottom five countries are Central African Republic, Republic of Congo, Eritrea, and Guinea, all in Africa.

Limitations of the report

For Bhutan, the data taken to evaluate its economy were those available as of June 1 this year, with the exception for paying tax indicators relevant only till the end of last year.

There are also limitations in its methodology. Crucial factors important to evaluate business opportunities like an economy’s proximity to large markets, the quality of its infrastructure services (other than those related to trading across borders and getting electricity), the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions are not directly studied by the report.

Conclusion

Despite limitations, the report is expected to help identify obstacles in doing business and is expected to help policy makers in coming up with necessary regulatory reforms. Bhutan is not an exception.

Meanwhile, Singapore minister Khaw Boon Wan has tweaked an interesting perspective for Bhutan in pursuit of its development ideology. Although his assertions call for an intensive round of debate, it is worth asking whether Bhutan needs to have its foot down when it comes to ground realities.

The above article was published by Business Bhutan on October 22, 2011

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