Doing business and beyond: Looking deeper at Sri Lanka’s rankings

The International Finance Corporation (IFC), and the World Bank, last week launched the latest Doing Business report, ‘Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises’. The report finds that from June 2011 to June 2012, Sri Lanka implemented the most regulatory reforms among eight economies in South Asia, helping to create a better environment for local entrepreneurs.

The report also indicates that Sri Lanka has moved up 15 positions in this year’s rankings, coming in at 81, from last year’s revised ranking of 96. In light of the country’s strong performance in the rankings, IFC’s Country Manager for Sri Lanka and Maldives, Adam Sack, discusses these results and Sri Lanka’s potential to improve

Q: What do the latest DB results mean for Sri Lanka?

A: It is great to note that Sri Lanka has made many positive changes in several indicators as captured in the Doing Business Report 2013. To be ranked at 81, the highest of any South Asian economy, showcases that Sri Lanka’s doing many things right.

So, to look at what’s worked so far:

•  The Government has also made registering property faster by introducing an electronic system at the land registry – there’s been a significant improvement in this indicator – reducing the time required by 29 days.
• Sri Lanka has strengthened the secured transactions system as maintained by the Credit Bureau – a project that we’ve been working on together with the Central Bank.
• The Government has made it easier to start a business, by computerising and expediting the process of obtaining a registration number for the Employees Provident Fund and Employees Trust Fund
• And finally, Sri Lanka has reduced the time to export by implementing a computerised customs management system which covers most foreign trade procedures.

So it’s positive to note the changes that the Government is actively making to these key indicators. The move up 15 notches from the revised ranking of the 2012 report, also means that Sri Lanka is ranked 2nd amongst the 10 economies that improved the most globally. And, as you may be aware - this is the first time in 7 years that a South Asian economy ranks among those improving the most in the ease of doing business.

Q: How does the Doing Business report measure a country’s performance?

A: A fundamental premise of Doing Business is that economic activity requires good rules. The Doing Business report analyses the regulations that apply to an economy’s small and medium sized businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and protecting investors. As such, the aggregate ease of doing business rankings are based on 10 indicators and cover over 185 economies.

Overall, this year, the report found that, worldwide, 108 economies implemented 201 regulatory reforms in 2011/12 making it easier to do business. Reform efforts globally have focused on making it easier to start a new business, increasing the efficiency of tax administration, and facilitating trade across international borders. Of the 201 regulatory reforms recorded in the past year, 44% focused on these 3 policy areas alone.

However, I want to point out that there are some limitations to what’s captured in Doing Business. The report does not measure all aspects of the business environment that matter to firms and investors. For example, it does not measure the quality of fiscal management, other aspects of macroeconomic stability, the level of skills in the labour force, the quality of infrastructure, or the resilience of financial systems. To improve the investment climate in Sri Lanka will take continued efforts by the Government in a number of these other areas as well.

Q: What role do you feel the private sector can play to partner in the growth of Sri Lanka’s economy?

A: IFC’s experience globally shows that it is the private sector which plays a key role in promoting social and economic development. This learning has formed the basis for our role in promoting private sector development. Globally, we have partnered and complemented the private sector as a strategic long-term partner to promote inclusive and clean growth. Similarly, in Sri Lanka, IFC is partnering with the private sector to grow and expand, and I am excited about the strong developmental impact we can achieve in the country.

Q: What are some of the sectors IFC is focusing on this year?

A: Through our investment and advisory work, IFC helps the private sector by creating opportunities and reducing poverty through:

•  Developing micro, small and medium businesses in Sri Lanka through increased access to finance, skill building and job creation.
• Partnering with companies that promote sustainable, inclusive growth
• Helping improve business regulations

Currently, we have a committed portfolio of around US$ 180 million in Sri Lanka invested across diverse sectors, including renewable energy, healthcare, tourism, and the financial sector. Looking forward, we are scaling up our activities, and have a new strategy for the next few years, which focuses on our strategic pillars of Inclusive growth by increasing access to services for the underserved; and Global integration by enhancing growth and competitiveness of priority sectors, such as tourism and agribusiness.

Over the next three years, we aim to reach one million Sri Lankans through improved access to services, and we will meet these goals by doubling our investments to $250 million a year by 2015 while also doubling our Advisory portfolio to 18 projects.

Q: A large part of IFC’s work is related to developing the SME sector - what are some of the key aspects to these projects?

A: As you’ve mentioned, a key aspect to our work is to help develop SMEs, or small and medium scale enterprises in Sri Lanka. We believe that SMEs are essentially the backbone for emerging economies, and it is vital to create suitable conditions for these businesses to thrive.

IFC works across sectors to help strengthen micro, small and medium scale enterprises or MSMEs. Our projects have helped these entrepreneurs through increased access to finance, enhanced management and technical skills, and improved regulatory framework.

Through such interventions, IFC has reached over 300,000 MSMEs, of which over 80% were women entrepreneurs from 2008 to 2011.