71514 v2 The Investment Climate In South Asia Volume II - Country Profiles January 2007 Finance and Private Sector Development Unit South Asia Region The World Bank © 2007 The International Bank for Reconstruction and Development/ THE WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, USA The material in this work is copyrighted. No part of this work may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or inclusion in any information storage and retrieval system, without the prior written permission of the World Bank. The World Bank encourages dissemination of its work and will normally grant permission promptly. For permission to photocopy or reprint, please send a request with complete information to the Copyright Clearance Center, Inc, 222 Rosewood Drive, Danvers, MA 01923, USA Telephone 978-750-8400, Fax 978-750-4470, www.copyright.com All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, Fax 202-522-2422, e-mail pubrights@worldbank.org Designed & Printed by; Ari Investments Limited 19, St. Joseph Road, Nugegoda, Sri Lanka. Tel 0094-11-2852410 Fax 0094-11-2822615 e-mail ariyaw@sltnet.lk II TABLE OF CONTENTS Acknowledgments ........................ . .. .... ....... .. .. . ........... . ... IV Foreword ........................................ ... ............ . .......... V South Asian Countries ... . .. . ...... . .. . .. .. .. . .. .... ... . .. .. . .. . .. . ... . .. . .. I Afghanistan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1 Bangladesh . .. ..... .. ... . . .. ... . ........... .. ............... .. . .. .... 13 Bhutan .............................................................. 27 India ............... . ..... .. .. .. .... ... ....... .. .. .. ...... . . .. . ..... . 41 Maldives ............................................................. 55 Nepal ... . . ... . .......... . ..... .... ......... .. ..... .. . . ......... .. ... . 69 Pakistan .............................................................. 83 Sri Lanka ............................................................ 97 Comparator Countries .. .. .. .. . .. ..... .... .. .. ... ....... .. .. . ...... . .. . .... III Brazil ... ... . . ...... .. ............. ... ............. .... ..... . ....... III China .............................................................. 125 Indonesia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 139 South Africa. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 151 Turkey .. .. .. ..... ...... .... .. . . ................ ...... . . ...... .. .... 165 III ACKNOWLEDGMENTS This report was prepared by Guillemette Sidonie Jaffrin, (South Asia Finance and Private Sector Development Department - SASFP,) and Syed A. Mahmood, SASFP, under the guidance of Simon C. Bell, sector manager, SASFP. Mona Mehta Steffen helped prepare individual country profiles based on a standardized set of investment climate data. Maria Espiritu and Kadija Jama provided valuable inputs to the preparation of the report. IV FOREWORD This Statistical Volwne represents the efforts of the World Bank's South Asia region to systematize the data sets coming from the Enterprise Surveys and Investment Climate Assessments (ICAs) undertaken within our region. South Asia is fortunate in that it has undertaken ICAs in all eight countries of the region -- and, in some cases, more than once (we are currently working on the third Indian ICA and the second Pakistan and Bangladesh ICAs). Whereas the Doing Business data sets have the strength of their comparability; regular and consistent updating; and uniform methodology -- the Enterprise Survey data sets, while larger and potentially much richer, have not lent themselves as well to benchmarking and comparative analysis. With the evolution of the Country Profile tool --the South Asia region saw a way to better systematize these data sets. Serious methodological and statistical problems, nonetheless, continue to exist. The Surveys in the region have been undertaken at varying time periods (between 2000 and 2005); have used differing survey instruments; and have been cleaned and developed on a basis which has not always been consistent. We therefore offer this data set with considerable caveats. Nonetheless, we felt that it was important to move towards a more rigorous, systematic, and cross cutting approach in dealing with the Enterprise Survey data sets --so as to ultimately ensure that they became as rich and as powerful as the Doing Business data sets. This volume presents individualized Country Profiles for the eight countries in the South Asia Region: Afghanistan, Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The South Asian Country Profiles are accompanied by similar Profiles for five comparator countries: Brazil, China, Indonesia, South Africa and Turkey. These comparators were selected based on their geographical position (at least one country in each region: Latin America, East Asia, Africa and Europe) and on their economic performance. It was also considered extremely important to compare South Asia with countries outside of the region. The Country Profiles summarize the major findings of the Enterprise Survey -- focusing on eight broad areas of the investment climate. The jnvestment climate dimensions covered are: (a) infrastructure; (b) finance; (c) labor; (d) corruption; (e) courts and crime; (f) innovation and technology; and (g) trade --with sub-indicators under each of these categories. Each Country Profile also presents a snapshot listing the top 10 investment climate constraints as reported by an surveyed firms in the country and the top three investment climate constraints reported by each of three size categories of surveyed firms: small, medium and large. The companion volume to this publication -- the South Asia Investment Climate Assessment -- analyzes similarities and differences within the region and between South Asia and the comparator countries. This second volume provides the detailed and standardized country-specific data underpinning the analysis in Volwne 1. Simon C. Ben Sector Manager South Asia Finance and Private Sector Development v Enterprise Surveys Country Profile Afghanistan 2005 SURVEY Region: South Asia (SAR) Income Group = Low Population (2005): 29.9 million GNI per capita (2005): $235 Introduction 3 cu .., Snapshot Infrastructure Access to Finance 4 5 6 Labor Markets 7 Corruption & Regulatory Burden 8 o Courts & Crime Innovations & Technology 9 10 u Trade 11 Summary of Enterprise Survey Indicators 12 2 ES Country Profile: Introduction Enterprise Survey (ES) The Enterprise Survey focuses on the many factors that contribute to shaping the decisions of firms to invest productively. These factors can be accommodating or constraining and play an important role in whether a country prospers or not. An accomodating business environment encourages firms to operate efficiently and competitively by decreasing risks, costs, and barriers to competition. Such conditions strengthen incentives for firms to innovate and to increase their productivity-a key factor in sustainable development. A more productive private sector, in turn, expands employment and contributes taxes necessary for public investment in health, education, and other services. In contrast, a poor business environment increases the obstacles to conducting business activities and decreases a country's prospects for reaching its potential in terms of employment, production, and welfare. The ES is conducted by the World Bank and its partners across all geographic regions and covers firms of all sizes in many industries. For countries in the Europe & Central Asia (ECA) region, the project is administered in conjunction with the European Bank for Reconstruction and Development (EBRD) and branded as the Business Environment and Enterprise Performance Survey (BEEPS). The ES collects a wide array of qualitative and quantitative information through face-to-face interviews with managers and owners regarding the business environment in their country and the productivity of their firms. Topics covered in the ES include the obstacles to doing bUSiness, infrastructure, finance, labor, corruption and regulation, contract enforcement, law and order, innovation and technology, and firm productivity. Taken together, the qualitative and quantitative data help connect a country's business environment characteristics with firm productivity and performance. The ES database is intended to be useful for both policymakers and researchers, and the surveys are to be repeated over time to track changes and benchmark the effects of reforms. Country Profiles The country profiles provide an overview of key business environment indicators for a country with benchmarks against their respective geographical region and a standard group of countries with similar incomes. Breakdowns by firm size are contained in tables at the back of the document along with all statistics used in the graphs. A fixed set of topics is covered for all countries with slight variations in indicators (subject to data availability). This format allows comparisons of countries across topics. All indicators are based on the responses of firms. AFGHANISTAN 2005 3 AFGHANISTAN 2005 The country profile for Afghanistan is based on data from the Enterprise Survey conducted by the World Bank in 2005. The benchmarks include the averages of countries in South Asia and the low income group. Below is a snapshot of the constraints to investment and doing business as perceived by firms. The first graph presents the top 10 constraints as identified by firms in Afghanistan benchmarked against the regional average. The second graph shows the top 3 constraints for small, medium, and large firms in Afghanistan. * Trade related questions shown below were asked to all firms while similar queries in the appendix were asked only to firms that trade. Snapshot of the Business Environment in Afghanistan Top 10 Constraints for Entrepreneurs (Percentage of Firms Identifying Pnlblem as "Major" or "Very Severe" Obstade) 70 60 ~SouthAsia 50 40 30 20 10 o Electricity Access to Land Corruption Cost of Access to Customs and Tax Rates Tax Anti- Legal Financing Financing Trade Administration competitive system/conflict Regulations Informal resolution practices Perceptions of Constraints by Firm Size: (Percentage of Finns Identifying Pnlblem as "Major" or "Very Severe" Obstacle) Small Finns Medium Firms Large Firms (1-19 Employ_) (20-99 Employ_) (100 Employ_ or More) 40 30 20 10 o Access to Electricity Corruption Electricity Cost of Access to Customs 8. Electricity Corruption Land Financing Land Trade Regulations 4 ES CountlY Profile: Infrastructure A strong infrastructure enhances 70 , 60 ES: Infrastructure as a Constraint the competitiveness of an economy and improves the quality of life of so ~ r I/) its residents. Good infrastructure E u::: connects firms to their customers ~ 40 and suppliers, and enables the use ~ 30 Q) of modern production technologies. Conversely, deficiencies in infra- ~ 20 I structure create barriers to oppor- 10 tunities and increase costs for all firms, from micro enterprises to 0 - multinational corporations. Rrms Identifying Transportation as Major Firms Identifying Electricity as Major Constraint Constraint Enterprise Surveys capture the dual ~ Low Income • Afghanistan • South As challenges of providing strong infrastructure: the physical construction of roads, power lines, water systems, etc.; and the devel- opment of institutions that effec- tively provide and maintain public services. ES: Service Delays The first set of indicators shows how firms perceive two compo- nents of infrastructure as 70 constraints. Inadequate transporta- 60 I/) tion and problems with electricity ~ 50 -c increase costs, disrupt production, '0 40 and lower revenue. ~ 30 The second set of indicators evalu- § z 20 ates the efficiency of infrastructure 10 'T services by quantifying the delays o in obtaining electricity and tele- Delays in Obtaining Electricity Delays in Obtaining Telephone phone connections. Service delays Connections Connections impose unnecessary costs on firms and may act as barriers to entry _ Afghanistan - South Asia Low Income and investment. AFGHANISTAN 2005 5 Finance 60 I ES: Access to Finance as a Constraint Developed financial markets 50 provide payment services, II) mobilize savings, and finance in- .~ 40 u. vestment. Efficient financial '0 markets reduce the reliance on ~ 30 2c internal funds and money from ~ informal sources such as family v a. 20 - - and friends by connecting firms to a broad range of lenders and investors. Firms Identifying Access to Finance as Firms Identifying Cost of Finance as Major Enterprise Surveys provide indi- Major Constraint Constraint cators of how firms perceive their financial environment and .Afghanistan . South Asia o Low Income I finance their investment. The first set of indicators mea- sures the degree to which firms perceive access and costs of ES: How Firms Finance Investment finance as constraints to in- vestment. Inadequate financ- Afghanistan ing possibilities create difficul- ties in meetin9 short term pay- ments for labor and supplies as well as longer term investment. South Asia The second indicator compares the relative usage of various sources for financing invest- ment. Excessive reliance on Low Income internal funds is a likely sign of inefficient financial intermedia- tion. o 10 20 30 40 50 60 70 80 90 100 Percentage of Investment Financed by: l. Internal Funds • Banks Leasing iii Inform -a -u - l-So -rc -e- s -O-T-ra re-di-t • Other 1 -d-e-C- 6 ES Country Profile: ES: Labor Regulations & Skill as Constraints Labor 25 ~---------------------------- Jobs are the main source of in- come for people-and the main 20 +--- pathway out of poverty for the '" E u::: poor. A sound investment cli- '0 15 mate contributes to the creation QI Ol of employment opportunities, ~1O investment in the workforce, increases in wages, and, ulti- i 5 mately, a more productive and prosperous society. o Firms Identifying Labor Regulations as Firms Identifying Labor Skill Level as Major Constraint Major Constraint Enterprise Surveys collect infor- mation on the labor market con- [ _Afghanistan _ South Asia CLow Income straints faced by firms and also on the characteristics of workers in the firms surveyed, including human capital and gender. The first set of indicators meas- ES: Investing in Workers ures the extent to which firms perceive labor regulations and the skill level of workers as con- E 35 40 r 45 straints. The inability to hire or ~ 30 fire for due cause and the lack of qualified workers leads to inefficient production and higher H~ l costs. The second set of indicators highlights firm investment in the oE-- ------ Firms Offering Formal Training skills and capabilities of their I_Afghanistan - South Asia 0 Low Income I workforce. Incidence and in- tensity of training is measured by the percentage of firms that offer formal training and the share of skilled workers receiv- ing formal training. AFGHANISTAN 2005 7 Corruption &. Regulatory Burden The manner in which govern- ES: Corruption as a Constraint ments regulate plays a signifi- 70 9 cant role in shaping investment decisions and how firms do business. Effective regu 'ations III 60 50 j - 7 8 address market failures that u:::E ~ 6!f @ inhibit productive investment '0 40 5~ OJ <.C and reconcile private and public 2' 4g, ro c 30 interests. Yet, regulations pre- ~ 1Il OJ sent major administrative and ~ 3[ 20 financial burdens on firms when 2 poorly designed or ineffectively 10 - 1 implemented. Often, these costs _ _.L-_ _ __ 0 o ~ are in the form of bribes when Afghanistan South Asia Low Income firms are required to make Firms Identifying Corruption as Major Constraint "unofficial" payments to public ~Unofficial Payments to "Get Things Done" (% Sales) officials to get things done. ES: Bribe Tax in Public Services Enterprise Surveys provide qua- 50 - , - - - - - - - - litative and quantitative mea- sures of corruption and the re- III 40 E u::: gulatory burden. '0 30 The first set of indicators fo- OJ Ol cuses on the perceptions of firms ~ 20 ~ regarding general corruption and ~ 10 the amount of unofficial payments, i.e., the "bribe tax". o 1---- Afghanistan South Asia Low Income The second set of indicators Firms Expected to Give Gifts to Obtain Import Licenses identifies the extent to which specific administrative and ES: Time Tax: The Hidden Cost of Regulation regulatory functions require 25 bribe payments. OJ ~ 20 The third set of indicators cap- '0 ~15 tures the "time tax" imposed by 2 c regulation. Excessive time taken ~ 10 lii away from managing the c.. productive aspects of their firms 5 and spent dealing with govern- 0 +---- ment regulations and tax in- Afghanistan South Asia Low Income spectors impose additional costs Firms with Management Time Spent in Tax Inspections/Meetings on firms. 8 ES Country Profile: Courts &. Crime Commercial disputes between ES: Courts and Crime as a Constraint firms occur regularly in the course 35 ---- -- of doing business, yet resolving these disputes can be challenging 30 when legal institutions are weak or absent. When avenues to the 25 resolution of disputes that may § arise with buyers, customers, or ~ 20 v 01 suppliers are limited, firms will be ~ 15 less willing to engage in arm's I'ength transactions or risky activi- ~ 10 ties with high payoffs. Often, the only recourse for firms is the court system and the rendering of a legal decision. Not only are out comes uncertain, but also this 't- o Firms Identifying Legal System/Conflict Resolution as a Major Constraint Firms Identifying Crime, Theft, and Disorder as a Major Constraint process can be lengthy and expen· sive. Similarly, crime imposes [. Afghanistan South Asia o Low Inc~meJ costs on firms when they are forced to divert resources from productive uses to protection. ES: Demand for Contract Enforcement 100 Enterprise Surveys capture key dimensions of contract enforce- ment problems and the effect of 80 Vl crime on firm revenue. E u::: 60 '0 The first set of indicators shows ~ 19 the share of firms that identify c 40 ~ the legal system and crime as ~ major obstacles. 20 The second set of indicators reflects the demand for effective o Firms with Overdue Firms with Confidence in institutions that help enforce Payments from Legal System to Enforce contracts-measured by the level Buyers/Suppliers/Customers Contract/Property Rights in of overdue payments, the use of Disputes courts to resolve disputes, and ' . Afghanistan . South Asia o Low Incom~ confidence in the legal system. AFGHANISTAN 2005 9 Innovation &. o gy Technol, In order to survive and prosper in ES: Innovative Capability a competitive marketplace, firms must innovate and increase their 100 II) productivity in response to the E 80 pressures they face from rival u::: ..... 0 60 businesses. A sound investment ClJ en 2 40 climate encourages firms to expe- c ClJ u riment and learn; it rewards Q; < 50 The third set of indicators pre- 1:5 3: sents the composition of the E 40 u: firms' workforce by skill and gen- '0 Q) 30 der. Policies that encourage 01 2 c firms to invest in the human capi· ~ 20 Q; c.. tal of their workforce can playa 10 critical role in increasing the skills and wages of men and 0 women. Managers/ Non-production Skilled Production Unskilled Production Professionals Workers Workers Workers BANGLADESH 2002 19 Corruption & 70 ES: Corruption as a Constraint 2.5 Regulatory 60 1 2 Burden VI E 50 u: .... 0 40 The manner in which govern- Q) en ments regulate plays a signifi- 19 c 30 Q) cant role in shaping investment ~ Q) c.. 20 decisions and how firms do business. Effective regulations 0.5 10 address market failures that inhibit productive investment o ~ o and reconcile private and public Bangladesh South Asia Low Income interests. Yet, regulations pre- _ Firms Identifying Corruption as Major Constraint sent major administrative and ~Unofficial Payments to "Get Things Done" (% Sales) financial burdens on firms when ES: The "Bribe Tax" in Public Services poorly designed or ineffectively 100 implemented. Often, these costs are in the form of bribes when 80 firms are required to make VI "unofficial" payments to public E u: officials to get things done. .... 0 60 Q) en 2 c Enterprise Surveys provide qua- Q) 40 ~ litative and quantitative mea- Q) c.. sures of corruption and the re- 20 gulatory burden. o The first set of indicators fo- Firms Expected to Give Firms Asked to Give Gifts Firms Asked to Give Gifts cuses on the perceptions of firms Gifts in Meetings with Tax to Labor Inspectors to Fire Inspectors regarding general corruption and Inspectors the amount of unofficial . r Bangladesh • South Asia Low Income payments, i.e., ~he "bribe tax". ES: The "Time Tax" of Regulation The second set of indicators 9T 5 identifies the extent to which specific regulatory administrative functions and require .... c Q) E Q) en '" c :1 6 4.5 4 3.5 0 0/ -< VI 5' -; '" 0/ )( bribe payments. ~ 3 S' (; Q) 5 - VI "c E '0 The third set of indicators cap- ~ .... 0 F 4 j 2.5 2 CD 8: 0 :> ~ Q) tures the "time tax" imposed by en 3 .... '" 1.5 3: ~ c regulation. Excessive time taken Q) 2 ~ :> away from managing the Q) c.. Ie VI 1 0.5 productive aspects of their firms and spent dealing with govern- 0 0 Bangladesh South Asia Low Income ment regulations and tax in- spectors impose additional costs [; Senior Management TIme Dealing with Government Regulations I on firms. ~TIme Spent In Tax Inspections/Meetings _ ~ 20 ES Country Profile: Courts & 50 - ES: Courts and Crime as a Constraint Crime 10 j Commercial disputes between III § firms occur regularly in the course u::: of doing business, yet resolving these disputes can be challenging .... c 0 0) 01 19 JO L when legal institutions are weak 0) 20 - ~ 0) or absent. When avenues to the Cl. resolution of disputes that may 10 j arise with buyers, customers, or suppliers are limited, firms will be less willing to engage in arm's o +---- Firms Identifying Crime, Theft, and Disorder as a Major Constraint length transactions or risky activi- ,_ Bangladesh . South Asi; Low Income ] ties with high payoffs. Often, the only recourse for firms is the ES: Demand for Contract Enforcement court system and the rendering of 60 1 a legal decision. Not only are out 50 comes uncertain, but also this process can be lengthy and expen· ~ 40 ~- I sive. Similarly, crime imposes '0 costs on firms when they are forced to divert resources from ~>30 (13 productive uses to protection. ~ 20 Enterprise Surveys capture key 10 dimensions of contract enforce- ment problems and the effect of o crime on firm revenue. Firms with Overdue Firms Resolving Disputes Firms with Confidence in Payments from through Court Action Legal System to Enforce Buyers/Suppliers/Customers Contract/Property Rights The first set of indicators shows Disputes the share of firms that identify l- Bangladesh • South Asia 0 Lo~me 1 crime as a major obstacle. ES: The Costs of Crime and Disorder The second set of indicators 2.0 I reflects the demand for effective institutions that help enforce contracts-measured by the level 1.6 I ~ of overdue payments, the use of ~ 1.2 courts to resolve disputes, and '0 0) 01 confidence in the legal system. .l9 c 0) ~ Cl. The third set of indicators measures the direct costs of security and losses from crime, resources that could have been invested in productive activities. Cost of Security Loss due to Crime ~_ Bangladesh • South Asia 0 Low I~ BANGLADESH 2002 21 Innovation &. 0.8 les: Innovative capability Technology 0.6 In order to survive and prosper in '" E u: a competitive marketplace, firms '0 must innovate and increase their ~0 .4 .l9 productivity in response to the c pressures they face from rival j 0.2 businesses. A sound investment climate encourages firms to expe- riment and I'earn; it rewards o success and punishes failure. R&D Expenditures as Share of Sales Enterprise Surveys provide indica- [ _ Bangladesh _ South Asia 0 Low ~ tors that describe several dimen- ES: How Finns Acquire Technological Innovations sions of technological efficiency and innovation. Bangladesh The first set of indicators measures firms' investment in research and development. South Asia The second set of indicators summarizes the various methods Low Income that firms can use to acquire their technology. o so J 10 20 30 40 60 70 80 90 100 The third set of indicators demon -,-rcentage =:------:---:---:,Pe of Firms that Acquired Technol ical Innovations b : - Purchasing New Machinery or Equipment - Hiring Key Personnel strates the utilization of informa- o Licensing D Developed Internally or With Others [ tion and communications techno- _ Other Ways logies (ICT) in business transac- ES: Use of the Internet tions by firms. ICT, such as the 80 Internet, are important tools for firms because they provide even the smallest of enterprises with the ability to reach national and international markets. Firms Using E-mail to Interact with Firms Using Website to Interact with Buyers/SupplierS/Customers Buyers/Suppliers/Customers I_Bangladesh Ii South Asia o Low Income I 22 ES Country Profile: Trade Open markets allow firms to ex- ES: Customs and Trade Regulations as a Constraint 50 pand and force greater efficien- cies on exporters who must com- '" "0 pete internationally, while the a- ~ 40 .S bility to import cheaper supplies "0 from abroad enables firms to '" 0\ ~ 30 c: w minimize costs. Competitive pres· II) sures may subsequently build E u::: 20 within local economies and com- '0 '" 0\ pel all firms to improve produc- ~ tivity as well. However, trading '" ~ 10 '" 0.. also exposes the firm to additio- nal constraints when dealing with 0 Bangladesh South Asia Low Income customs and trade regulations, such as export and import license ~irms Identifying Customs & Trade Regulations as a Major constrain~ requirements and the possibility ES: Inefficiencies in Customs of bribes. 12 Enterprise Surveys collect infor- 10 mation on the constraints faced by exporters and importers and 8 also capture the trade activity of II) firms. >- ~ 6 The first set of indicators shows 4 the extent to which firms that trade directly-those that export 2 or import without going through a distributor---consider customs and o trade regulations to be a con- Days On Average To Claim Imports From Days On Average To Clear Customs For Customs Exports straint. The second set of indicators .Bangladesh _ South Asia o Low Incom :i] measures how many days imports ES: Import Activity and exports are delayed by cus- 60 toms. The delay in clearing cus- toms for imports or exports pre- sents additional costs to the firm and can interrupt production, interfere with sales, and result in damaged supplies and merchan- dise. The third set of indicators dis- plays the share of firms that 0 -1----- import directly. Percent of Firms that Import Directly ' .Bangladesh iii South Asia D Low Income I BANGLADESH 2002 23 Summary of Enterprise Survey Indicators Small Medium Large Bangladesh (1-19 (20-99 (100+ % of Firms Identifying Transportation as a Major 24.2 18.6 27.4 23.2 15.8 16.6 Constraint % of Firms Identifying Electricity as a Major 73.2 70.1 77.0 71.9 38.3 34.8 Constraint Days/Year of Power Outages 249.0 272.2 268.6 239.0 75.1 47.5 % of Sale., Lost to Power Outages 3.0 2.4 3.8 2.7 5.7 4.6 Days/Year of Insufficient Water Supply 17.6 10.7 26.6 15.3 8.0 23.9 Delays in Obtaining Electricity Connections 66.3 46.1 74.8 65.6 55.2 39.7 (Days/year) Delays in Obtaining Telephone Connections 126.0 116.4 135.5 123.0 65.0 54.8 (Days/Year) Finance Indicators % of Firms Identifying Access to Finance as a 41.5 41.5 47.4 38.6 28.1 35.5 Major Constraint % of Firms Identifying Cost of Finance as a Major 49.8 38.0 54.3 48.9 34.6 44.1 Constraint % of Investments Financed by Internal Funds 59.9 75.6 62.4 56.9 53.1 63.9 % of Investments Financed by Banks 29.7 11.2 27.5 32.8 18.0 16.5 % of Investments Financed by Leasing 1.9 0.0 1.1 2.4 2.9 1.1 % of Investments Financed by Informal Sources 4.6 10.1 4.8 3.9 5.2 4.7 % of Investments Financed by Trade Credits 2.6 2.3 2.9 2.5 1.9 1.6 % of Investments Financed by Other Sources 1.3 0.7 1.2 1.4 18.8 12.3 % of Firms with Bank Loans/Overdraft Accounts 64.4 35.1 58.5 71.5 48.7 33.7 Value of Collateral (% of Loan Value) 92.5 77.1 84.2 95.8 108.9 139.4 Labor Market Indicators % of Firms Identifying Labor Regulations as a 8.3 1.4 7.3 9.6 16.4 11.0 Major Constraint % of Firms Identifying Labor Skill Level as a 19.3 6.6 21.0 19.5 16.5 20.3 Major Constraint % of Firms Offering Formal Training 27.2 6.6 23.0 31.3 26.9 40.1 % of Skilled Workers Offered Formal Training 32.6 NA NA 32.6 33.2 25.6 Managers/Professionals (as % of Total 10.1 19.6 13.8 7.5 13.5 23.7 of which: % Female 0.5 0.6 0.4 0.6 2.5 4.1 Non-production Workers (as % of Total 6.7 6.0 8.3 6.1 15.7 12.8 of which: % Female 14.4 4.3 8.0 19.1 13.6 18.9 Skilled Production Workers (as % of Total Work- 62.3 59.8 58.8 64.1 31.5 34.1 force) of which: % Female 31.5 7.3 6.7 43.4 25.4 14.0 Unskilled Production Workers (as % of Total 21.2 14.6 19.1 22.8 28.7 26.3 Work-force) of which: % Female 33.7 7.3 12.3 42.9 26.0 20.6 24 ES Country Profile: Small Medium Large Lo Bangladesh (1-19 (20-99 (100+ South Asia I W ncome Employees) Em~lo;;r~ Emi oyees) _;i§·"'fflil'fi:j"'.t§.,j,i.13·'iiijli,t.jAJ'Cii.C_ % of Firms Identifying Corruption as Major 57.8 32.4 60.6 58.7 30.5 37.1 Constraint Unofficial Payments to Get Things Done (% of 2.1 2.3 2.1 2.1 1.3 1.5 Sales) Unofficial Payments to Secure Government 4.0 4.2 4.2 4.0 2.0 3.0 Procurement (% of Contract) % of Firms Expected to Give Gifts in Meetings 85.8 79.4 81.9 87.7 44.3 28.8 with Tax Inspectors % Firms asked to Give a Gift to the Labor Inspector 77.2 58.3 70.9 79.7 58.6 52.7 % Firms asked to Give a Gift to the Fire Inspector 68.8 50.0 55.4 74.4 15.1 10.4 % Senior Management Time Dealing with 3.7 2.1 3.7 3.9 7.2 8.2 Government Regulations Time Spent in Tax Inspection Meetings 2.8 2.3 2.8 2.9 3.8 4.7 (Days/Year) Courts and Crime Indicators % of Rrms Identifying Crime, Theft and Disorder 39.2 19.4 47. 0 37.8 22.6 25.9 as a Major Constraint % of Firms with Overdue Payments from 5.7 10.2 8.6 3.9 16.2 57.1 Buyers/Suppliers/Customers % of Firms Resolving Disputes through Court 7.8 7.9 1.9 12.2 3.0 9.2 Action % of Firms with Confidence in Legal System to 17.0 11.7 17.1 17.0 48.5 52.8 Enforce Contract/Property Rights in Disputes Costs of Security (% of Sales) 0.5 0.7 0.6 0.5 0.5 1.7 Losses due to Crime (% of Sales) 0.4 0.4 0.5 0.4 0.3 1.3 "lnnovation and Technology Indicators R&D Expenditures (% of Sales) 0.2 0.0 0.3 0.2 0.5 0.7 % of Firms Acquiring Technological Innovations 42.6 28.2 32.1 48.5 34.9 53.1 by Purchasing New Machinery or Equipment % of Firms Acquiring Technological Innovations 19.1 23.9 21.4 17.9 13.4 9.5 by Hiring Key Personnel % of Firms Acquiring Technological Innovations 1.9 0.0 2.9 1.8 5.0 3.7 by Licensing % of Firms Acquiring Technological Innovations 26.5 39.4 32.1 22.6 30.4 22.5 by Developing Internally or with Others % of Firms Acquiring Technological Innovations 9.9 8.5 11.5 9.3 16.4 11.2 by Other Ways % of Firms Using E-mail to Interact with 70.3 13.0 48.5 85.6 62.1 49.9 Buyers/Suppliers/Customers % of Firms Using Website to Interact with 31.1 2.6 18.7 39.4 26.7 26.1 Buyers/Suppliers/Customers BANGLADESH 2002 25 Small Medium Large Low Bangladesh (1-19 (20-99 (100+ South Asia Income Employees) Employees) Employees) Trade Indicators % of Firms That Trade Identifying Customs & 43.3 23.5 40.6 44.6 28.3 28.9 Trade Regulations as a Major Constraint Days on Average to Claim Imports From Customs 10.6 10.3 9.4 10.8 8.5 8.0 Days on Average to Clear Customs for Exports 8.3 15.5 9.4 8.1 6.3 4.6 % of Firms That Import Directly 53.7 17.3 27.7 68.3 39.2 43.8 Note: Country-level indicators denoting percentage of firms use as denominators the number of firms for which data for the respective question is available. Country-level indicators denoting quantities (i.e. the number of days, percentage of sales, percentage of loan value, et.:.) represent averages of responding firms that are not considered to be outliers. Outliers are defined as firms with values greater than the mean plus 3 times the standard deviation or less than the mean minus 3 times the standard deviation for that particular indicator. Regional and income group indicators are calculated as averages of country-level indicators in the respective region and income groups. 26 ES Countly Profile: Enterprise Surveys Country Profile Bhutan 2001 SURVEY ,.. ... '1 ' , I ... Region: South Asia (SAR) Income Group: Low Population (2001): 0.9 million GNI per capita (2001): US$560 Introduction 29 Snapshot 30 Infrastructure 31 Access to Finance 32 Labor Markets 33 Corruption & Regulatory Burden 34 o Courts & Crime 35 Innovations & Technology 36 u Trade 37 Summary of Enterprise Survey Indicators 38 28 ES Country Profile: Introduction Enterprise SU/vey (ES) The Enterprise Survey focuses on the many factors that contribute to shaping the decisions of firms to invest productively. These factors can be accommodating or constraining and play an important role in whether a country prospers or not. An accomodating business environment encourages firms to operate efficiently and competitively by decreasing risks, costs, and barriers to competition. Such conditions strengthen incentives for firms to innovate and to increase their productivity-a key factor in sustainable development. A more productive private sector, in turn, expands employment and contributes taxes necessary for public investment in health, education, and other services. In contrast, a poor business environment increases the obstacles to conducting business activities and decreases a country's prospects for reaching its potential in terms of employment, production, and welfare. The ES is conducted by the World Bank and its partners across all geographic regions and covers firms of all sizes in many industries. For countries in the Europe & Central Asia (ECA) region, the project is administered in conjunction with the European Bank for Reconstruction and Development (EBRD) and branded as the Business Environment and Enterprise Performance Survey (BEEPS). The ES collects a wide array of qualitative and quantitative information through face-to-face interviews with managers and owners regarding the business environment in their country and the productivity of their firms. Topics covered in the ES include the obstacles to doing business, infrastructure, finance, labor, corruption and regulation, contract enforcement, law and order, innovation and technology, and firm productivity. Taken together, the qualitative and quantitative data help connect a country's business environment characteristics with firm productivity and performance. The ES database is intended to be useful for both policymakers and researchers, and the surveys are to be repeated over time to track changes and benchmark the effects of reforms. Country Profiles The country profiles provide an overview of key business environment indicators for a country with benchmarks against their respective geographical region and a standard group of countries with similar incomes. Breakdowns by firm size are contained in tables at the back of the document along with all statistics used in the graphs. A fixed set of topics is covered for all countries with slight variations in indicators (subject to data availability). This format allows comparisons of countries across topics. All indicators are based on the responses of firms. BHUTAN 2001 29 BHUTAN 2001 The country profile for Bhutan is based on data from the Enterprise Survey conducted by the World Bank in 2001. The benchmarks include the averages of countries in South Asia and the low income group. Below is a snapshot of the constraints to investment and doing business as perceived by firms. The first graph presents the top 10 constraints as identified by firms in Bhutan benchmarked against the regional average. The second graph shows the top 3 constraints for small, medium, and large firms in Bhutan. Snapshot of the Business Environment in Bhutan Top 10 Constraints for Entrepreneurs (Percentage of FInns Identifying Problem as "Major" or "Very Severe" Obstacle) 60 . S Asia 50 40 30 • • • • • 20 10 o Skills & Education of Labor Regulations InsuffICient Demand for I I I I I • Access to Financing Transportation Tax Rates Cost of Financing Infrastructure Imports • Access to Land Available Products Workers Perceptions of Constraints by Firm Size: (Percentage of Firms Identifying Problem as "Major" or 'Very Severe" Obstacle I 70 Small Firms Medium Finns Large Firms (1-19 (20-99 Employees) (100 Employees or More) 60 50 40 30 II 20 10 0 Labor skills Labor Insufficient labor skills Labor Insufficient Labor skills Labor Insuffident regulation Demand for regulation Demand for regulation Demand for Products Products Products 30 ES Country Profile: Infrastructu re A strong infrastructure en-hances the competitiveness of an economy and improves the quality ES: Infrastructure as a Constraint of life of its residents. Good 45 infrastructure connects firms to 40 their customers and suppliers, and 35 enables the use of modern II> production technolo-gies. E 30 u:: Conversely, deficiencies in '0 25 Q) infrastructure create barriers to 0\ S 20 c: opportunities and increase costs Q) ~ for all firms, from microenter- .& 15 prises to multinational corpora- 10 tions. 5 Enterprise Surveys capture the 0 ------, Firms Identifying Transportation as Major Firms Identifying Electricity as Major dual challenges of providing strong Constraint Constraint infrastructure: the physi-cal 'iBhu~- South Asia Low Income construction of roads, power lines, water systems, etc.; and the development of institutions that effectively provide and maintain public services. The first set of indicators shows ES: Quality of Infrastructure how firms perceive two compo- nents of infrastructure as con- 80 ~ straints. Inadequate transpor- ~ u:: 60 tation and problems with '0 electricity increase costs, disrupt ~ 40 S production, and lower revenue. c: I Q) ~ 20 The second set of indicators o measures the quality of infra- Days of Insufficient Water Supply Days of Power Outages structure-the number of days with power interruptions, and the - Bhutan - South Asia Low Income 1 number of days with insufficient water supply. BHUTAN 2001 31 Finance 50 ES: Access to Finance as a Constraint Developed financial markets 40 provide payment services, III E mobilize savings, and finance in- ii: '0 30 vestment. Efficient financial OJ 0\ 19 markets reduce the reliance on :ij 20 + - 1 - - - - ~ internal funds and money from OJ c.. informal sources such as family and fri~nds by connecting firms to a broad range of lenders and Firms Identifying Access to Finance as Major Firms Identifying Cost of Finance as Major investors. Constraint Constraint [• B~ • South Asia Low Income I Enterprise Surveys provide indi- ES: How Firms Finance Investment cators of how firms perceive their financial environment and finance their investment. Bhutan The first set of indicators mea- sures the degree to which firms South Asia perceive access and costs of finance as constraints to iln- vestment. Inadequate financ- ~i ing possibilities create difficul- Low Income ties in meeting short term pay- ments for labor and supplies as well as longer term investment. o 10 20 30 40 50 60 70 80 90 100 Percentage of Investment Financed by: The second indicator compares ~ ~ternal Funds • Banks Leasing . I nformal Sources • Trade Credit Other the relative usage of various ES: Bank Loans and Collateral sources for financing invest- ment. Excessive reliance on 180 t = 160 + - - - - - - - - - - - - internal funds is a likely sign of 140 inefficient financial intermedia- III tion. ~ 120 t - '0 100 OJ The third set of indicators fo- 0\ ~ 80 - cuses on the use of bank loans ~ and overdraft facilities, and & 60 quantifies the burden imposed 40 by loan requirements, which is 20 measured by collateral levels o relative to the value of the loan. Firms with Bank Loans/Overdraft Value of Collateral as Percentage of Loan Excessive loan collateral re- Accounts Value quirements are likely to con- I. Bhutan • South Asia • Low Income I strain investment opportunities. 32 ES Country Profile: Labor 60 ES: Labor Regulations" Skill as Constraints Jobs are the main source of in- 50 come for people-and the main pathway out of poverty for the poor. A sound investment cli- mate contributes to the creation of employment opportunities, investment in the workforce, increases in wages, and, ulti- 10 mately, a more productive and prosperous society. o Firms Identifying Labor Regulations as Firms Identifying Labor Skill Level as Major Major Constraint Constraint Enterprise Surveys collect infor- mation on the labor market con- [ • Bhutan • South Asia • Low Income 1 straints faced by firms and also ES: Investing in Workers on the characteristics of workers 50 in the firms surveyed, including human capital and gender. 40 III The first set of indicators meas- E u:: 30 +----~ ures the extent to which firms '5 Q) perceive labor regulations and E ~ 20 +------~ the skill level of workers as con- Q) "- straints. The inability to hire or 10 fire for due cause and the lack of qualified workers leads to inefficient production and higher 0 - - -- - - Firms Offering Formal Training Skilled Workers Receiving Formal Training costs. I. Bhutan • South Asia • Low Income The second set of indicators ES: Skill Composition of Firms' Workforce highlights firm investment in the 40 - - skills and capabilities of their • Females workforce. Incidence and in- Q) I tensity of training is measured ~ 30 ~ by the percentage of firms that 5 :;: offer formal training and the E share of skilled workers receiv- u:: 20 '5 ing formal training. Q) W The third set of indicators pre- ~ "- 10 sents the composition of the firms' workforce by skill and gen- der. Policies that encourage o firms to invest in the human capi Managers! Non-production Skilled Production Unskilled Production tal of their workforce can playa Professionals Workers Workers Workers critical role in increasing the [ • Bhutan • South Asia Low Income skills and wages of men and women. BHUTAN 200] 33 Corruption & Regulatory Burden ES: Corruption as a COnstraint The manner in which govern- 40 ments regulate plays a signifi- 35 cant role in shaping investment decisions and how firms do '" 30 ~ business. Effective regulations E u::: 25 ...... address market failures that 0 III Ol 20 inhibit productive investment .!9 c:: Q) and reconcile private and public ~ Q) 15 a.. interests. Yet, regulations pre- 10 sent major administrative and 5 financial burdens on firms when poorly designed or ineffectively o -t-- Bhutan South Asia Low Income implemented. Often, these costs are in the form of bribes when Rrms Identifying Corruption as a Major Constraint firms are required to make "unofficial" payments to public officials to get things done. Enterprise Surveys provide qua- litative and quantitative mea- sures of corruption and the re- gulatory burden. The indicators focus on the perceptions of firms regarding general corruption and the amount of unofficial payments, i.e., the "bribe tax". 34 ES Country Profile: Courts & Crime Commercial disputes between ES: Demand for Contract Enforcement firms occur regularly in the course 60 - of doing business, yet resolving these disputes can be challenging when legal institutions are weak or absent. When avenues to the E40 resolution of disputes that may Li: 'B arise with buyers, customers, or Q) ~ suppliers are limited, firms will be c ~ less willing to engage in arm's & 20 length transactions or risky activi- ties with high payoffs. Often, the only recourse for firms is the court system and the rendering of o a legal decision. Not only are out Firms with Overdue Payments from Firms Resolving Disputes through Court Buyers/Suppliers/Customers Action comes uncertain, but also this • Bhutan • South Asia Low Income process can be lengthy and expen· sive. Similarly, crime . imposes costs on firms when they are forced to divert resources from productive uses to protection. Enterprise Surveys capture key dimensions of contract enforce- ment problems and the effect of crime on firm revenue. The indicators reflect the de- mand for effective institu- tions that help enforce contracts-measured by the level of overdue payments, the use of courts to resolve disputes, and BHUTAN 2001 35 Innovation & Technology In order to survive and prosper in ES: Use of Internet a competitive marketplace, firms 100 must innovate and increase their productivity in response to the pressures they face from rival E 80 I businesses. A sound investment IT: 60 climate encourages firms to expe- '0 riment and learn; it rewards Q) C1 ~ success and punishes failure. ai 40 ~ Q) a.. Enterprise Surveys provide indica- 20 tors that describe several dimen- sions of technological efficiency 0 -- and innovation. Firms Using E-mail to Interact with Firms Using Website to Interact with Buyers/SupplierS/Customers Buyers/Suppliers/Customers The indicators demonstrate the utilization of information and com- • Bhutan . South Asia Low Income munications technologies (lCT) in business transactions by firms. ICT, such as the Internet, are important tools for firms because they provide even the smallest of enterprises with the ability to reach national and international markets. 36 ES Country Profile: Trade ES: Customs and Trade Regulations as a Constraint Open markets allow firms to ex- 35 pand and force greater efficien- cies on exporters who must com- ~ 30 ~ pete internationally, while the a- t- .!: 25 - t - - - - bility to import cheaper supplies ~ C\ from abroad enables firms to ro ~ 20 minimize costs. Competitive pres VI sures may subsequently build ~ 15 '0 within local economies and com- Q) ~ 10 pel all firms to improve produc- c Q) tivity as well. However, trading l: & 5 also exposes the firm to additio- nal constraints when dealing with o Bhutan South Asia Low Income customs and trade regulations, such as export and import license Firms Identifying Customs & Trade Regulations as a IMajor Constraint requirements and the possibility of bribes. Enterprise Surveys collect infor- ES: Inefficiencies in Customs mation on the constraints faced by exporters and importers and also capture the trade activity of firms. The first set of indicators shows 2 the extent to which firms that trade directly-those that export o or import without going through a Bhutan South Asia Low Income distributor-consider customs and Days on Average to Claim Imports from Customs trade regulations to be a con- straint. The second set of indicators measures how many days imports and exports are delayed by cus- toms. The delay in clearing cus- toms for imports or exports pre- sents additional costs to the firm and can interrupt production, interfere with sales, and result in damaged supplies and merchan- dise. BHUTAN 2001 37 Summary of Enterprise Survey Indicators Small Medium Large Bhutan (1-19 (20-99 (100+ SAR Low Income % of Firms Identifying Transportation as a 10.9 12.9 14.3 10.5 15.8 16.6 Major Constraint % of Firms Identifying E,lectricity as a Major 5.4 5.3 6.5 5.0 38.3 34.8 Constraint Days/Year of Power Outages 20.9 19.8 18.4 27. 7 75.1 47.5 Days/Year of Insufficient Water Supply 5.5 5.2 6.2 5.3 8.0 23 .9 Finance Indicators % of Firms Identifying Access to Finance as a 14.3 17.1 15.2 9.1 28.1 35.5 Maj or Constraint % of Firms Identi'fying Cost of Finance as a 12.2 7.3 24.2 4.5 34.6 44.1 Major Constraint % of Investments Financed by Internal Funds 66.0 37.0 33.5 67.5 53.1 63.9 % of Investments Financed by Banks 18.1 13.9 21.4 12.5 18.0 16.5 % of Investments Financed by Informal 3.8 8.3 0.0 4.8 5.2 4.7 Sources % of Investments Financed by Trade Credits 2.0 0.0 4.0 0.0 1.9 1.6 % of Investments Financed by Other Sources 10.2 15.9 10.8 4.8 18.8 12.3 % of Firms with Bank Loans/Overdraft 41.8 29.3 39.4 68.2 48.7 33.7 Accounts Value of Collateral (% of Loan Value) 156.3 147.9 119.6 205.8 108.9 139.4 labor Market Indicators % of Firms Identifying Labor Regulations as a 30.6 36.6 27.3 27.3 16.4 11 .0 Major Constraint % of Firms Identifying Labor Skill Level as a 49 .0 46.3 45.5 49.2 16.5 20.3 Maior Constraint % of Firms Offering Formal Training 1.6 1.7 1.6 1.5 26.9 40.1 % of Skilled Workers Offered Formal Training 27.5 22.7 31.9 26.8 33.2 25 .6 Managers/Professionals (as % of Total 14.0 18.7 11.3 10.1 13.5 23 .7 Workforce) of which: % Female 2.1 2.8 1.9 0.4 2.5 4.1 Non-production Workers (as % of Total 31.5 25.3 35.5 36.1 15.7 12.8 of which: % Female 17.6 25.0 14.2 14.0 13.6 18.9 Skilled Production Workers (as % of Total 21.7 26.8 16.3 21.0 31.5 34.1 of which: % Female 6.6 9.0 6.7 2.0 25.4 14.0 Unskilled Production Workers (as % of Total 32.8 29.3 36.9 32.8 28.7 26.3 of which: % Female 19.0 13.5 26.1 16.0 26.0 20 .6 38 ES Country Profile: Small Medium Large Bhutan (1-19 (20-99 (100+ SAR Low Income Employees) Employees) Employees) Regulatory Burden and Corruption Indicators % of Firms Identifying Corruption as Major 5.1 4.9 3.0 9.1 30.5 37.1 Constraint Courts and Crime Indicators % of Firms with Overdue Payments from 32.2 21.1 40.0 38.0 16.2 57.1 Buyers/Suppliers/Customers % of Firms Resolving Disputes through Court 21.4 12.5 8.3 50.0 3.0 9.2 Action Innovation and Technology Indicators % of Firms Undertaking Innovation 58.5 43.6 68.8 68.2 79.3 72.6 % of Firms Acquiring Technological 100.0 100.0 100.0 100.0 34 .9 53.1 Innovations by Purchasing New Machinery or Equipment % of Firms Using E-mail to Interact with 76.3 70.6 68.0 95.2 62.1 49.9 Buyers/Suppliers/Customers % of Firms Using Website to Interact with 18.8 23.5 12.0 19.1 26 .7 26.1 Buyers/Suppliers/Customers Trade Indicators % of Firms That Trade Identifying Customs & 8.3 5.0 5.3 11.1 28.3 28.9 Trade Regulations as a Major Constraint Days on Average to Claim Imports From 4.7 4.5 0.0 4.3 8.5 8.0 Customs Note: Country-level indicators denoting percentage of firms use as denominators the number of firms for which data for the respective question is available. Country-level indicators denoting quantities (i.e. the number of days, percentage of sales, percentage of loan value, etc.) represent averages of responding firms that are not conSidered to be outliers. Outliers are defined as firms with values greater than the mean plus 3 times the standard deviation or less than the mean minus 3 times the standard deviation for that particular indicator. Regional and income group indicators are calculated as averages of country-level indicators in the respective region and income groups. BHUTAN 2001 39 Enterprise Surveys Country Profile India 2002 SURVEY I Region: South Asia (SAR) Income Group: Low Population (2002): 1048.7 million GNI per capita (2002): US$470 Introduction 43 ..., CU Snapshot I nfrastructu re Access to Finance Labor Markets 44 45 46 47 C Corruption & Regulatory Burden Courts & Crime 48 49 0 Innovations & Technology Trade 50 51 U Summary of Enterprise Survey Indicators 52 42 ES Country Profile: Introduction Enterprise Survey (ES) The Enterprise Survey focuses on the many factors that contribute to shaping the decisions of firms to invest product1ively. These factors can be accommodating or constraining and play an important role in whether a country prospers or not. An accomodating business environment encourages firms to operate efficiently and competitively by decreasing risks, costs, and barriers to competition. Such conditions strengthen incentives for firms to innovate and to increase their productivity-a key factor in sustainable development. A more productive private sector, in turn, expands employment and contributes taxes necessary for public investment in health, education, and other services. In contrast, a poor business environment increases the obstacles to conducting business activities and decreases a country's prospects for reaching its potential in terms of employment, production, and welfare. The ES is conducted by the World Bank and its partners across all geographic regions and covers firms of all sizes in many industries. For countries in the Europe & Central Asia (ECA) region, the project is administered in conjunction with the European Bank for Reconstruction and Development (EBRD) and branded as the Business Environment and Enterprise Performance Survey (BEEPS). The ES collects a wide array of qualitative and quantitative information through face-to-face interviews with managers and owners regarding the business environment in their country and the productivity of their firms. Topics covered in the ES include the obstacles to doing business, infrastructure, finance, labor, corruption and regulation, contract enforcement, law and order, innovation and technology, and firm productivity. Taken together, the qualitative and quantitative data help connect a country's business environment characteristics with firm productivity and performance. The ES database is intended to be useful for both policymakers and researchers, and the surveys are to be repeated over time to track changes and benchmark the effects of reforms. Country Profiles The country profiles provide an overview of key business environment indicators for a country with benchmarks against their respective geographical region and a standard group of countries with similar incomes. Breakdowns by firm size are contained in tables at the back of the document along with all statistics used in the graphs. A fixed set of topics is covered for all countries with slight variations in indicators (subject to data availabflity). This format allows comparisons of countries across topics. All indicators are based on the responses of firms. INDIA 2002 43 INDIA 2002 The country profile for India is based on data from the Enterprise Survey conducted by the World Bank in 2002. The benchmarks include the averages of countries in South Asia and the low income group. Below is a snapshot of the constraints to investment and doing business as perceived by firms. The first graph presents the top 10 constraints as identified by firms in India benchmarked against the regional average. The second graph shows the top 3 constraints for small, medium, and large firms in India. Snapshot of the Business Environment in India Top 10 Constraints for Entrepreneurs (Percentage of Firms Identifying Problem as "Major" or "Very Severe" Obstacle) 45 40 - + -South Asia 35 30 25 20 15 10 5 o Corruption Electricity Tax Rates Tax Economic and Cost of Access to Anti- Labor Macroeconomic Administration Regulatory Financing Financing competitive or Regulations Instability Policy informal Uncertainty practices Perceptions of Constraints by Firm Size: India (Percentage of Firms Identifying Problem as "Major" or "Very Severe" Obstacle) 45 Small Firms Medium Finns Large Firms (1-19 Employees) (20-99 Employees) (100 Employees or More) 40 35 30 25 20 15 10 o Corruption Electricity Tax Rates Corruption Electricity Tax Corruption Tax Electricity Administration Administration 44 ES Country Profile: Infrastructure 45 ES: Infrastructure as a Constraint 40 A strong infrastructure en- hances the competitiveness of 35 an economy and improves the '" E 30 i.L quality of life of its residents. '0 25 Good infrastructure connects Q) 01 ~ 20 firms to their customers and c Q) ~ suppliers, and enables the use of Q) a.. 15 modern production technolo- 10 gies. Conversely, deficiencies in 5 - infrastructure create barriers to opportunities and increase costs oL for all firms, from microenter- Firms Identifying Transportation as Major Firms Identifying Electricity as Major Constraint Constraint prises to multinational corpora- tions. [iIfidia • South Asia • Low Income I Enterprise Surveys capture the ES: Quality of Infrastructure ~ 9 dual challenges of providing strong infrastructure: the physi- 8 cal construction of roads, power 140 7 "'0 lines, water systems, etc.; and 120 6 ~ f6 the development of institutions that effectively provide and ! 100 5 @- ~ 80 4 ..... 0 maintain public services. Ul 60 3 ~ The first set of indicators shows 40 2 '" how firms perceive two compo- 20 nents of infrastructure as con- o straints. Inadequate transpor- _ Days of Power Outages Days of Insufficient Water Supply tation and problems with elec- -'-Percentage of Sales Lost to Power Outages tricity increase costs, disrupt I• j India • South Asia • Low Income --------' production, and lower revenue. ES: Service Delays The second set of indicators 80 measures the quality of infra- structure-the number of days 70 with power interruptions, the 60 related losses in sales, and the number of days with insufficient 50 water supply. The third set of indicators evaluates the efficiency of infra- ! 40 30 1- structure services by quantify- 20 ~ ing the delays in obtaining elec- 10 ~ triCity and telephone connec- tions. Service delays impose o unnecessary costs on firms and Delays in Obtaining Electricity Connections Delays in Obtaining Telephone Connections i • India • South Asia • Low Income may act as barriers to entry and --' investment. INDIA 2002 45 Finance ES: Access to Finance as a Constraint :~ r- Developed financial markets provide payment services, 40 i -- E 35 i-I--- ~ 30 j mobilize savings, and finance in- vestment. Efficient financial l!j, 25 markets reduce the reliance on .19 20 internal funds and money from @ l15 1 informal sources such as family 10 and friends by connecting firms 5 to a broad range of lenders and oI investors. Firms Identifying Access to Finance as Firms Identifying Cost of Finance as Major Major Constraint Constraint Enterprise Surveys provide indi- iI - - - - Low Income 1 ndia " South Asia cators of how firms perceive _ % Other ES: How Firms Finance Investment their financial environment and (equities, venture capital, finance their investment. other) The first set of indicators mea- _ % Financing by Banks, Working sures the degree to which firms Capital perceive access and costs of finance as constraints to in- vestment. Inadequate financ- ing possibilities create difficul- % Financing by ties in meeting short term pay- Banks & DFIs, ments for labor and supplies as Term Loans well as longer term investment. India The second indicator displays the country's relative usage of ES: Bank loans and Collateral certain sources for financing 160 ' invest-ment. 140 The third set of indicators fo- 120 " cuses on the use of bank loans 100 and overdraft facilities, and Q) 0\ .19 quantifies the burden imposed c: Q) 80 --~ ~ by loan reqUirements, which is Q) Q. 60 measured by collateral levels relative to the value of the loan. 40 Excessive loan collateral re- quirements are likely to con- strain investment opportunities. ':L Firms with Bank Loans/Overdraft Accounts Value of Collateral as Percentage of Loan Value I -India • South Asia Low Income J 46 ES Country Profile: Labor 25 ES: Labor Regulations. Skill as Constraints Jobs are the main source of in- 20 come for people-and the main pathway out of poverty for the poor. A sound investment cli- mate contributes to the creation of employment opportunities, investment in the workforce, 5 increases in wages, and, ulti- mately, a more productive and prosperous society. Firms Identifying Labor Regulations as Firms Identifying Labor Skill Level as Major Enterprise Surveys collect infor- Major Constraint Constraint mation on the labor market con- [ • India • South Asia Low Income 1 straints faced by firms and also ES: Investing in Workers on the characteristics of workers in the firms surveyed, including human capital and gender. 40 The first set of indicators meas- ures the extent to which firms perceive labor regulations and the skill level of workers as con- straints. The inability to hire or fire for due cause and the lack of 10 qualified workers leads to inefficient production and higher o costs. Firms Offering Formal Training [ • India - South Asia Low Income 1 The second set of indicators - 1 highlights firm investment in the ES: Skill Composition of Finns' WOIid'orcle skills and capabilities of their 80 Females workforce. Incidence of training 70 is measured by the percentage QJ ~ of firms that offer formal 60 training. 1 ~ 50 1-1- - - - - - E The third set of indicators pre- ;r 40 '0 sents the composition of the QJ ~ 30 firms' workforce by skill and gen- ~ der. Policies that encourage ~ 20 firms to invest in the human capi· 10 tal of their workforce can playa critical role in increasing the o skills and wages of men and Managers/ Non-production Skilled Production Unskilled Production women. Professionals Workers Workers Workers INDIA 2002 47 Corruption & ES: Corruption as a Constraint 1.8 Regulatory ~l 35 1.6 1.4 30 Burden VI E u::: 25 1.2 rl "U (1) (1) :l '0 6T Q) \0 The manner in which govern- Ol 20 (1) .l9 c 0.8 g, ments regulate plays a signifi- Q) ~ 15 l{l Q) 0.6 if cant role in shaping investment 0.. 10 0.4 decisions and how firms do business. Effective regulations 5 [ 0.2 address market failures that 0 -- 0 inhibit productive investment India South Asia Low Income and reconcile private and public f- Firms Identifying Corruption as Major Constraint interests. Yet, regulations pre- ~Unofficial Payments to "Get Things Done" (% Sales) sent major administrative and financial burdens on firms when poorly designed or ineffectively ES: The uTime Tax" of Regulation 14 .,.. 6 implemented. Often, these costs are in the form of bribes when .... c 12 0 Q) 5 III firms are required to make E Q) ~ s· I: CI 10 "unofficial" payments to public to C to 0} )( ~ officials to get things done. ... B ...... :l .Q Q) VI cE ~ ~F go Enterprise Surveys provide qua- '0 6 t :l Q) .!!!.. litative and quantitative mea- Ol .l9 4- 2 ~ (1) c sures of corruption and the re- Q) ~ ~ :l & 2 -'- 1 \0 VI gulatory burden. 0 +- L--- 0 The first set of indicators fo- India South Asia Low Income cuses on the perceptions of firms regarding general corruption and I. Senior Management Time Dealing with Government Regulations .....Time Spent in Tax Inspections/Meetings the amount of unofficial payments, i.e., the "bribe tax". The second set of indicators cap' tures the "time tax" imposed by regulation. Excessive time taken away from managing the productive aspects of their firms and spent dealing with govern- ment regulations and tax in- spectors impose additional costs on firms. 48 ES Country Profile: Courts &. 30 ES: Courts and Crime as a Constraint Crime 25 Commercial disputes between § 20 firms occur regularly in the course u: '0 of dOing business, yet resolving ~ 15 j9 these disputes can be challenging c ~ when legal institutions are weak & 10 or absent. When avenues to the resolution of disputes that may arise with buyers, customers, or suppliers are limited, firms will be less willing to engage in arm's :L Firms Identifying Crime, Theft, and Disorder as a Major Constraint I _ I ndia - South Asia Low Inc~ length transactions or risky activi- ES: Demand for Contract Enforcement ties with high payoffs. Often, the only recourse for firms is the court system and the rendering of a legal decision. Not only are out comes uncertain, but also this :1 ~j process can be lengthy and expen· '0 sive. Similarly, crime imposes 2j, 40 j9 c costs on firms when they are ~ 30 forced to divert resources from 20 1 - - - productive uses to protection. 10 Enterprise Surveys capture key dimensions of contract enforce- o. ment problems and the effect of Firms with Overdue Payments from Firms with Confidence in Legal System to Buyers/Suppliers/Customers Enforce Contract/Property Rights in crime on firm revenue. Disputes I _ India - South Asia - Low - -om - I-nc - 'I - e The first set of indicators shows the share of firms that identify ES: The Costs of Crime and Disorder the legal system and crime as major obstacles. The second set of indicators :::: j 70.0 reflects the demand for effective § 60.0 u: institutions that help enforce '0 50.0 contracts-measured by the level t c 40.0 of overdue payments, the use of ~ QJ 30.0 courts to resolve disputes, and 0.. 20.0 confidence in the legal system. 10.0 The third set of indicators shows 0.0 +--- " the share of firms comfortable Firms Satisfied with Level Firms Having Been Firms Which Pay For of Law & Order Victimized in past Year Security Costs with law against those that were I _India I victimized and firms that pay for security in response to fears. INDIA 2002 49 Innovation &. 90 I ES: Innovative capability 0.8 Technology 80 70 ,. 0.7 0.6 In order to survive and prosper in ;V 0.5 ~ a competitive marketplace, firms must innovate and increase their productivity in response to the pressures they face from rival 1i 0.4 ~ 0.3 ~ Ul 20 0.2 businesses. A sound investment climate encourages firms to expe- 0.1 riment and learn; it rewards o success and punishes failure. India South Asia Low Income ~ Firms Undertaking Innovation~R&D Expenditures as Share ~ Enterprise Surveys provide indica- tors that describe several dimen- ES: Competition as Driver of Innovation sions of technological efficiency 90 and innovation. 80 70 The first set of indicators meas- III E 60 ures the degree to which firms u::: innovate and their investment in .... 0 50 CI.I research and development. In- '" .l9 c 40 CI.I novation here encompasses the ~ CI.I 30 !l. development or upgrade of pro- 20 duct lines, the introduction of new production technologies, and 10 the acquisition of new licensing 0 agreements. % Capadty Utilization OVer the Last Year _ India • South Asia • Low Income The second set of indicators ES: Use of the Internet shows the firm's capacity utili- zation over the past year. An 70 I overly high utilization can signal 60 constraints on firm expansion III 50 E whereas a low utilization can ~ .... 40 suggest ineffICiencies but room 0 CI.I for increasing production. '" .l9 c 30 ~ CI.I !l. 20 The third set of indicators demon· strates the utilization of informa- 10 tion and communications techno- 0 logies (lCT) in business transac- Firms Using E-mail to Interact with Firms Using Website to Interact with tions by firms. ICT, such as the Buyers/Suppliers/Customers Buyers/Suppliers/Customers Internet, are important tools for I_India - South Asia Low IilCOOie] firms because they provide even the smallest of enterprises with the ability to reach national and international markets. 50 ES Country Profile: Trade 35 ES: Customs and Trade Regulations as a Constraint Open markets allow firms to ex- ~ 30 ~ pand and force greater efficien- I- .5 cies on exporters who must com- '0 Q) 25 pete internationally, while the a- 0'1 '" 20 g' bility to import cheaper supplies w VI from abroad enables firms to E u:: 15 minimize costs. Competitive pres· '5 Q) sures may subsequently build 0'1 l'I 10 c: within local economies and com- ~ pel all firms to improve produc- v Q. 5 tivity as well. However, trading also exposes the firm to additio- 0 -- India South Asia Low Income nal constraints when dealing with customs and trade regulations, I Firms Identifying Customs & Trade Regulations as a Major Constraint I such as export and import license ES: Inefficiencies in Customs requirements and the possibility of bribes. 91 8 -r--- Enterprise Surveys collect infor- 7 mation on the constraints faced by exporters and importers and 6 also capture the trade activity of VI 5 >- firms. '" Cl 4 The first set of indicators shows the extent to which firms that trade directly-those that export or import without going through a distributor--consider customs and trade regulations to be a con- Days On Average To Claim Imports From Days On Average To Clear Customs For Customs Exports straint. [ • India . South Asia Low Income J The second set of indicators measures how many days imports ES: Import Activity and the "Bribe Tax" 50 18 and exports are delayed by cus- ~ toms. The delay in clearing cus- € \!! 45 16 @ :::J toms for imports or exports pre- 0 40 14 ~ t ro sents additional costs to the firm 8. 35 12 g, § :n and can interrupt production, ...., 30 '" :5 10 ~ interfere with sales, and result in VI 25 m x § 8 damaged supplies and merchan- dise. u:: 20 '- 0 6 a '0 ~ Q) 15 S 0'1 The third set of indicators dis- l'I 4 0. c: 10 Q) iii plays the share of firms that ~ Q) 5 2 0. import directly and the extent to Q. Gf 0 o which additional gift payments :=----_ _ _ _ South Asia India Low Income are required to obtain import _ Percent of Firms that Import Directly licenses. I ~Firms Expected to Give Gifts to Obtain Import Licenses INDIA 2002 51 Summary of Enterprise Survey Indicators Smait Medium Large ' Low India (1-19 (20-99 (100+ SouthAsla I ncome Employees) Employees) Employees) Infrastructure Indicators % of Firms Identifying Transportation as a Major 12.4 11.8 13.3 15.2 15.8 16.6 Constraint % of Firms Identifying Electricity as a Major 28.9 28.1 31.0 29.0 38.3 34.8 Constraint Days/Year of Power Outages 154.1 164.4 98.0 109.5 90.9 52.6 % of Sales Lost to Power Outages 8.1 8.5 8.4 4.7 5.3 4.5 Days/Year of Insufficient Water Supply 24 .7 24.8 16.8 10.4 10.8 24.0 Delays in Obtaining Electricity Connections 67.7 65.3 73.4 72.5 55.2 39.7 (Days{year) Delays in Obtaining Telephone Connections 63.3 70.1 51.8 49.9 65 .0 54.8 (Days/Year) FlIlctllU~ Indie.alor .. % of Firms Identifying Access to Finance as a 18.2 17. 8 20.6 14.3 28.1 35.5 Major Constraint % of Firms Identifying Cost of Finance as a Major 20.0 19.7 21.5 17.6 34.6 44 .1 Constraint % Financing by Banks, Working Capital 42 .1 65.4 76.9 83.4 % Financing by Banks & DFIs, Term Loans 56.4 11.4 20.2 13.6 % Financing by Venture Capital 0.1 0.6 0.2 0.2 % Financing by Private Equity/Private Placements 1.4 21.9 2.7 2.7 % Financing by Public Offer of Equity 0.0 0.7 0.0 0.1 % of Investments Financed by Other Sources 6.2 81.6 16.2 23.4 % of Firms with Bank Loans/Overdraft Accounts 57.2 50.1 68.7 81.7 48.7 33.7 Value of Collateral (% of Loan Value) 94.0 91.1 94.2 107.6 108.9 139.4 - l .• hm M.II I