How do we know if business reforms are having any impact?
From time to time, we hear government functionaries in Bangladesh talk about business reforms – about their plans to enact new laws, amend regulations and streamline regulatory processes. Sometimes, such pronouncements are indeed followed by reform actions. But how do we know if these reforms are having an impact on the ground?
The Doing Business report, published each year from 2004 to 2019, was one of the World Bank's most influential reports in recent years. In a decade and half of its existence, the Doing Business indicators, on which the report was based, triggered hundreds of reforms across the developing world.
Every autumn, people around the world waited for its release - eagerly and, in some cases, with trepidation. Over time, heads of governments got increasingly attracted to the reports and wanted to see their countries do well in the World Bank's Ease of Doing Business (EoDB) rankings based on the indicators.
One of the leaders was Narendra Modi. When he took office in 2014, India ranked 142nd in the EoDB ranking – a rather poor showing. Prime Minister Modi vowed to take India within the top 50 in a few years. His government carried out several regulatory reforms hoping that these would rapidly improve its rank. But when the 2015 Doing Business report came out, it got a shock. India's rank had improved only modestly, from 142 to 130.
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A frustrated and angry government complained to the World Bank, which responded candidly: a rank does not improve just because the government did a reform, its impact has to be felt by businesses.
By 2020, things had changed. India was ranked at 63rd; not yet in the top 50 that Modi had dreamed about in 2014 but a substantial improvement, nonetheless. So, what happened? We shall come to that in a moment.
From time to time, we hear government functionaries in Bangladesh talk about business reforms – about their plans to enact new laws, amend regulations and streamline regulatory processes. Sometimes, such pronouncements are indeed followed by reform actions. But how do we know if these reforms are having an impact on the ground?
Enacting a reform is one thing. Implementing it well is challenging. And sustaining implementation so that reforms have a lasting impact on businesses is even more difficult. That is why the rubber often does not hit the road and we see implementation gaps. Let us travel around the globe to see some examples.
A few years ago, the World Bank Group's evaluation arm, the Independent Evaluation Group (IEG), conducted 10 country case studies of regulatory reforms. These were a part of a major IEG evaluation of the effectiveness of regulatory reforms driven by the Doing Business (DB) indicators. In some countries, these reforms achieved the desired impact. But, in many, they fell short.
The IEG report states: "A review of IEG's 10 case studies reveals strong movement of DB indicators in most countries but tenuous links to measurable development outcomes. Some countries show little increase in investment, employment, or productivity."
Take, for example, Morocco. The country ranked 128th out of 183 countries in the Ease of Doing Business (EoDB) ranking in 2010. Ten years later, it jumped to 53rd out of 190 countries - a remarkable improvement. Despite this, both the economy and job growth slowed. People familiar with the private sector could not discern any correlation between the upward movement in the Doing Business rankings and the daily life of the enterprises.
Something similar happened in Jordan, which also had a significant improvement in its rank. Here, growth was constrained by regional shocks and macroeconomic policies. Moreover, growth happened largely in not labor-intensive sectors and hence was not inclusive.
In Africa, Rwanda was a star performer in the Doing Business rankings. For example, its many reforms to help improve access to credit for businesses catapulted Rwanda to the fourth place in the global ranking for this indicator. Yet, when the World Bank carried out a survey of enterprises in 2019, access to finance remained a big problem. It was the most cited constraint, and only one out of 10 firms (12% to be precise) reported having bank financing for investment.
These cases suggest that reform actions by government, even if taken in good faith, often fail to have noticeable impact on businesses. Expected results, such as increases in investment, output, employment or productivity, do not materialize. In other words, several bridges need to be crossed before reforms have a substantial impact on businesses.
Thus, instead of making outlandish promises about rapid development ("will become Singapore in a few years") or foreign investment ("billions of dollars of FDI will pour in soon"), the Bangladesh government should focus on increasing relevance and effectiveness of reform. For this, it needs to establish a clear results measurement framework. It must follow the maxim, "What gets measured, gets done".
To be relevant, reforms must target the most pressing constraints faced by businesses. Prioritizing issues like reducing permit or clearance times is beneficial, but addressing more critical concerns, such as sudden legal or regulatory changes, may have a greater impact. The government must be in regular dialogue with businesses to identify which constraints significantly hinder business operations. There are complaints that the current government has been slow in carrying out such consultations.
A reform may be relevant but not effective if its implementation is poor. India's construction permitting reform example tells us that implementation gaps are common and often not apparent to the government. This is also true of Bangladesh.
Take for example, the One-Stop Service (OSS) Portal, a digital facility established by the government in 2019 to streamline approval processes for businesses, including registration, licensing and utility connections. Although the facility is housed in a specific agency, such as the Bangladesh Investment Development Authority (BIDA), the approval decisions are provided by several agencies, each responsible for a particular regulatory process. These agencies send their staff to the OSS but often without adequate authority. Inefficient processes within these agencies thus delay the process. A recent report by the Asian Development Bank (Road Map for Investment Policy Reforms and Sustainable Development in Bangladesh) states: "The lack of personnel with decision-making power allocated to the OSS platform by the various participating authorities to date has been reported to be a source of unnecessary delays".
How can the government find out if the rubber is not hitting the road? Let us go back to the India example. When the Indian government realized that its regulatory reforms were not having the desired impact, it established feedback loops, involving multiple surveys and focus group discussions to assess implementation quality.
A key focus was construction permitting, where issues such as poor inter-agency coordination emerged. Architects needed approval requirements from up to 10 agencies, and despite automation efforts, on-the-ground changes were limited. Online payment facilities were inadequately implemented, manual fee payments persisted, and application tracking was unavailable, with many users unaware of the online system. These shortcomings indicated reforms had not fully translated into tangible improvements.
Follow-up actions addressed these issues, leading to significant reductions in permit processing times and procedures. Between 2016 and 2018, the number of procedures decreased from 32 to 18, and the days required dropped from 192 to 95. These reforms contributed to a remarkable improvement in India's ranking for construction permitting, moving it from 183rd to 52nd place within two years. The feedback-driven approach played a crucial role in this progress, demonstrating the importance of continuous assessment and targeted reforms to enhance regulatory efficiency.
If the Bangladesh government is serious about getting results from its investment climate reforms, it must establish a results measurement framework to monitor and evaluate whether reforms are being implemented well and having the desired impact.
Consider, for example, the long-term deal signed with a leading Danish company to build and operate the Laldia container terminal. At the contract signing ceremony top government functionaries talked about the expected results - increased efficiency, more job creation etc. But they spoke only in general terms. What the public needs is a document that presents the log frame of results, i.e., the performance indicators (such as average ship turn-around time, average vessel time at berth, average vessel time outside, average waiting time, total tonnage per vessel day etc.), the target values, i.e., how much improvement is targeted on each of these indicators, and the timelines, i.e., how much improvement to be achieved by year 1, year 2, year 3 etc.
Some in government argue that such data are not publicly available due to some confidentiality requirements. That is not a persuasive argument. We may note that when the government borrows from agencies such as the World Bank and IMF, the latter publish project reports with detailed matrices showing the expected results. The indicators, target values and timelines are all spelt out for the public to see. There should be at least something concrete in public domain about the expected improvements from the Laldia container port deal.
In fact, this should be done for any major reform exercise that the government embarks on. It must disclose the results framework to the public to demonstrate its seriousness about the reforms and to establish accountability. Otherwise, all the talk of reforms, all the glitzy presentations in conferences and smart photo cards on social media, will be seen by the public as a vain public relations exercise, not a demonstration of serious reform intent.
Syed Akhtar Mahmood is an economist who previously worked for an international development organisation.
