Firms in Nepal have adapted to a poor regulatory environment and deficient public services, underscoring the need for substantial reforms to enhance the business environment in the country, the Business Ready (B-READY) 2024, a new World Bank Group’s corporate flagship report said.
The report, which replaces and improves upon the Doing Business project, evaluates the business and investment climate worldwide. It provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural Environment, according to the group.
“It is designed to discourage “a race to the bottom” or simplistic solutions that were the unintended by-product of Doing Business,” said the World Bank Group, claiming that data and methods used for the Business Ready Report were both more rigorous and transparent than those for Doing Business.
The first edition of the report has an analytical framework that benchmarks economies based on three pillars – regulatory framework, public services, and operational efficiency.
With a score of 72.21, Nepal has topped the second quantile among 50 economies in operational efficiency, but the country has only scored 59.34 and 49.29, out of 100 in the regulatory framework and public services, respectively.
For the regulatory framework pillar, the indicators distinguish between rules and regulations that promote clarity, fairness, and the sustainability of the business environment and those that unnecessarily inhibit entrepreneurial activity.
Similarly, for the public services pillar,the indicators emphasise digitalisation, interoperability, transparency, and adequacy of services directed at easing regulatory compliance and enabling business activities.
Likewise, for the operational efficiency pillar, the indicators across topics assess firms’ experience in practice with respect to the business environment. They encompass both the ease of compliance with the regulatory framework and the effective use of public services directly relevant to firms.
“While Nepal excels in the operational efficiency pillar, its scores are lower in the other pillars,” the report says. “This pattern may be explained by the adaptability of existing firms to the poor regulatory environment and deficient public services.”
The disparities in Nepal’s performance across different pillars underscores the need for substantial reforms even if the country performs relatively well in the operational efficiency pillar, the report adds. Addressing these gaps could enhance overall business conditions and support more sustainable economic growth.
The analysis centres on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm, according to the report. It also offers insights into three cross-cutting themes that are relevant for modern economies – digital adoption, environmental sustainability and gender.
While the first edition has covered the 50 economies, the project aims to expand its coverage to over 100 economies by 2025 and about 180 economies by 2026.
One of the two major findings of the 2024 report was a sizable implementation gap. “Economies tend to perform better at enacting regulations to improve the national business climate than they do in providing the public services needed to secure actual progress,” it said.
Another observation, was that though richer economies tend to be more business-ready, a country need not be wealthy to create a good business environment.
Several developing economies rank among the top 10 in several categories, such as Rwanda for public services and operational efficiency, Colombia for its regulatory framework and public services, Georgia for its regulatory framework and operational efficiency.
The B-READY also provides a comprehensive assessment for each of 10 topics – business entry, business location, utility services, labour, financial services, international trade, taxation, dispute resolution, market competition, and business insolvency.
For each economy, the report produces two sets of scores: one consisting of 10 topic scores and another comprising 3 pillar scores, ranging from 0 to 100.
Economies are divided into five equal groupings (quintiles), from highest to lowest performers, based on their scores within each pillar. Those in the top quintile demonstrate the highest performance of each pillar, ranging from the 80th percentile to the maximum value. It represents the leading 20 percent of economies.
Economies in the second quintile represent the next 20 percent of the data, from the 60th to the 80th percentile. The economies in the third quintile, ranging from the 40th to the 60th percentile, exhibit a mix of strengths and weaknesses in their business environment, the report says. Those in the fourth quintile grapple with a challenging business environment characterised by relatively weak regulatory frameworks and public services, which constrains the operational efficiency of their businesses. And those in the bottom represent the lowest performance in each pillar.
The report also examines the relationship between business readiness and several economic indicators such as gross domestic product (GDP) per capita, foreign direct investment (FDI) and income level, focusing on the relative performance of low-income and middle-income economies.
