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Bangladesh fares poorly in resolving business disputes

Publication Date : 25-10-2012


Bangladesh could not improve its conditions in the last one decade when it comes to resolving a commercial dispute through courts, ending up in seeing itself ranked lowly in business climate.

Economies in all regions have improved contract enforcement in recent years. But according to the International Finance Corporation (IFC), Bangladesh did not take any major globally accepted reforms in enforcing contract.

Today, enforcing a contract in the country takes 1,442 days, costs 63.3 per cent of the value of the claim and requires 41 procedures, which gave the country a standing of 182 among 185 countries ranked in a study.

The IFC report -- Doing Business 2013 -- was released on Tuesday.

It took the same number of days, the same costs and the same number of procedures to enforce a contract in 2004, as the country did not bring any reforms to improve the scenario and help businesses grow.

The indifference to reform the legal system that could have helped businesses expand their network and markets has contributed to the country's slippage of five places in the Doing Business ranking.

Among the 185 countries, where the study was conducted, Bangladesh ranked 129th in terms of ease of doing business. Doing Business measures and tracks changes in regulations affecting 10 areas in the life cycle of a business.

The areas are starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.

Bangladesh stands 95th in the ranking on the ease of starting a business although the South Asian regional average is 86.

In the category, the country has, however, slipped by nine notches from last year, as Bangladesh did not implement procedures in line with the Doing Business standards. Starting a business in the country requires seven procedures, takes 19 days, costs 25.1 per cent of income per capita.

The country ranked 83rd on the ease of dealing with construction permits.

Dealing with construction permits in Bangladesh requires 11 procedures, takes 201 days and costs 126.5 per cent of income per capita.

Bangladesh performed the worst among all the countries on the ease of getting electricity to stand at 185 in the ranking of 185 economies, although the country has nearly doubled its electricity production to 6,000 megawatt.

Getting electricity requires nine procedures, takes 404 days and costs 5,193.8 per cent of income per capita, as getting a new power connection has become tough in the last couple of years.

Registering property has remained cumbersome, as businesses require to go through eight procedures, spend 245 days and count 6.8 per cent of the property value to have their property registered, placing Bangladesh at 175 in the ranking.

The economy has a score of 2 on the depth of credit information index and a score of 7 on the strength of legal rights index.

Higher scores indicate more credit information and stronger legal rights for borrowers and lenders.

The country stands at 83 in the ranking of the economies on the ease of getting credit.

"When economies strengthen the legal rights of lenders and borrowers under collateral and bankruptcy laws, and increase the scope, coverage and accessibility of credit information, they can increase entrepreneurs' access to credit," said the report.

Bangladesh ranked lowly in the sub-index as the ranking shows that the country did not take any reform measures -- as measured by the Doing Business -- in the area until recently.

The country has maintained its strong position when it comes to providing investor protections. It was ranked at 25 in the ranking.

The IFC said, in economies where it is more difficult and costly to pay taxes, larger shares of economic activity end up in the informal sector -- where businesses pay no taxes at all.

On an average, firms in Bangladesh make 20 tax payments a year, spend 302 hours a year in filing, preparing and paying taxes, and pay total taxes amounting to 35 per cent of their profit.

Bangladesh stands 97th in the ranking, as the country did not take any major reforms in the last six years in line with global standards in helping people pay taxes.

The delay in international trade and higher cost gave Bangladesh a ranking of 119 on the ease of trading across borders.

Where speed, low costs and continuation of viable businesses characterise the top-performing economies, resolving insolvency in Bangladesh takes four years on average and costs 8 per cent of the debtor's estate. In the sub-index, the country ranked 119th, putting questions over the efficiency of the country's insolvency proceedings.


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