Looking beyond rankings

Sri Lanka’s economic progress gained acknowledgement when the World Bank on Thursday announced that Sri Lanka was the most business friendly country in South Asia. Yet the journey still looms long on several points.

A new report from IFC and World Bank finds that the reforms implemented by Sri Lanka have helped create a much better business environment for entrepreneurs.

Sri Lanka rose to the 89th position in the global ranking of 183 countries, partly by strengthening investor protections and reducing taxes on business. Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution and by reducing corporate income tax, value added tax and nation building tax rates.

However, despite the significant improvements seen in Sri Lanka’s business landscape, the report has also identified further areas requiring intervention in the future, as the country has seen less progress in paying taxes, registering property and enforcing contracts.

Sri Lanka continues to rank poorly on paying taxes (rank 173) as well as registering property (rank 161) and enforcing contracts (rank 136). Sri Lanka also strengthened investor protection by requiring greater corporate disclosure on transactions between interested parties.

Clearly these are points that the Government and the private sector will have to work on. The 2012 Budget might be a good place to start but it certainly cannot stop there. It is also imperative that the Government increases its transparency and good governance track record to effectively support private sector growth.

From ending the political contamination and gun culture to discussing large-scale investment projects in Parliament, the Government has much more to do to stamp out corruption and wastage in this country. It is only then that incidents like the China National Aero Technology Import and Export Company (CATIC) deal will end for good.

Released yesterday, ‘Doing Business 2012: Doing Business in a More Transparent World’ assesses regulations affecting domestic firms in 183 economies and ranks the economies in 10 areas of business regulation, such as starting a business, resolving insolvency and trading across borders. This year, the Ease of Doing Business ranking has expanded to include indicators on getting electricity.

Over the past six years, all eight economies in South Asia have made their regulatory environment more business-friendly. This means more competition for Sri Lanka. Among the region’s economies, the low- and lower-middle-income economies of Afghanistan, Bhutan, India and Nepal also improved business regulations for local firms.

This will clearly be a challenge to Sri Lanka, especially in terms of attracting Foreign Direct Investment in a recession-hit climate. The Government will have to work harder in encouraging foreign investment and get cracking on the Comprehensive Economic Partnership Agreement (CEPA), which has been in limbo since 2008.

Networking effectively with the private sector as well as setting its own house in order will be two key challenges for Sri Lanka in 2012. This is not all; the ranking does not take into account the environmental and social damage that improved businesses can cause, especially in areas such as tourism. These policies have to get the attention of the Government if Sri Lanka is to keep climbing in the rankings.