Improving DBI to enhance FDI

There are many factors that investors look into before they take a final decision about making an investment. While there will be industry specific and institution specific factors that would be considered keenly, there will also be a large number of country specific factors that would receive their attention. As a result, a country's economic planners have to continuously examine the conditions surrounding the investment climate in a country so as to ensure that there is regular improvement in this aspect of the economy.

As is well known, continuous political stability, maintenance of law and order, sound regulatory systems, stable macroeconomic fundamentals, satisfactory level of support services, skilled labour force, and good quality management are some of the more important factors that influence an investment decision.

At the same time, investors are also human beings who compare living conditions across the world. They would, therefore, demand a reasonable level of living standards in the destinations that they invest. Such conditions would include a high level of health services, international standards in education for their children, reasonable levels of entertainment and leisure activities and a clean environment.

In addition to those conditions, there would also be the universally accepted factors that have an impact on doing business in a country.

The World Bank has, therefore, embarked on a laudable project to compile an Ease of Doing Business Index (DBI) so as to be able to compare the practices across the world. The index consists of 10 key criteria that are commonly used to compare the ease of doing business in a country, so as to be in a position to assess countries against a plethora of business practices across the globe.

In this way, the DBI ranks countries according to the scores that they receive in keeping with their own performances in each of the criteria.

This criteria covers 10 life cycles of a business; namely, Starting a Business, Dealing with construction permits, Getting electricity, Registering a property, Getting credit, Protecting investors, Paying taxes, Trading across borders, Enforcing contracts, and Resolving insolvency.

Each one of the above factors obviously has an impact on both, local investment and foreign direct investment (FDI), and many global investors now use this international ranking as a general guide in relation to their investment decision-making processes. Of late, there has been an active interest taken by several countries to consciously improve their business practices so as to take their rankings to higher levels. These countries obviously believe that by improving their DBI ratings, they will be able to attract the attention of the global investor community.

Over the past two years, Sri Lanka too seems to have taken a serious interest to improve their business practices and convey this trend to the world. This initiative is certainly a step in the right direction. In the first two years of this initiative, the results seem to reflect a considerable improvement of the ease of doing business in Sri Lanka.

Sri Lanka has improved its ranking from the 102nd position in 2010, to the 99th in 2011, and more recently, a significant jump has been made to the 89th rank by 2012.

What is most laudable in Sri Lanka's effort is that the country's political leadership has provided the guidance to this endeavour, upfront, with no less a person than President Mahinda Rajapaksa himself requesting the country's economic managers to take the necessary steps to enable Sri Lanka to reach the 30th ranking in the ease of doing business by the year 2016.

However, it has also to be appreciated that substantial improvements will be needed in Sri Lanka to qualify for major enhancements of the ranking, if the country is to be on track to achieve the 30th rank in the next four years, and hence the deep commitment and extensive reform program needed to secure this outcome should not be underestimated.

From recent events, it is seen that many focused steps are being taken to move towards that ranking in the 10 different areas, and it would now be useful to take stock and conduct a review to ascertain as to whether the steps taken during the past year have borne fruit, and as to whether there will be a further improvement in Sri Lanka's ranking from 2012 to 2013.

Introducing good business practices and ushering a conducive business environment are steps in the right direction, and need to be supported continuously.

If these efforts succeed, the ultimate gain would accrue to the ordinary citizens of the country, since they would then enjoy convenient and friendly business conditions when they try to get their own work done in the various economic sectors and establishments of the country.

That outcome would be an important by-product of this DBI improvement exercise, since the general enhancement of government and institutional services, and the private sector's services, would enhance the overall productivity levels of the country. Such an improvement would improve the country's image and credentials in the overall scheme of doing business.

When that happens, Sri Lanka would enter a virtuous cycle in relation to its improvement of business practices and such a cycle by itself, would help to create a much needed and desirable momentum of improvement and upgrade, in the same way that a vicious cycle would lead to the continuous downgrade of a system.

The next few years would be crucial, and global and local investors are likely to watch with interest, the results of this important exercise.