Ease of Doing Business in Nepal

Lalit Basnet - Jul 24, 2017

With the conclusion of Nepal Investment Summit 2017 a couple of months back, it was announced that our country succeeded to receive a commitment of USD 13.51 billion worth of Foreign Direct Investment (FDI) from various allied nation, with Chinese investment amounting to USD 8.3 billion alone. This is a drastic increase in the FDI which stood at USD 57.48 million during the year 2016 (Trading Economics).

So, what are the factors that contributed to this meteoric rise in the FDI, and what indicators did those companies take into consideration before making such commitment? In a liberal economy, one might suggest that the recent improvement in infrastructure development  and political stability played vital role, but it should not be overlooked that Nepal’s score in the Ease of Doing Business (EoDB) Index published by The World Bank in South Asian Region also played a crucial role to draw in these investments. Nepal ranks second behind Bhutan in the EoDB index in South Asian region.

In recognizing the importance of EoDB, let's shed some light on EoDB and its importance in developing nation like ours.

What is Ease of Doing Business?

Ease of doing business is an index published by the World Bank. It is an aggregate figure that includes different parameters which define the ease of doing business in a country (The Economic Times).

EoDB measures the ease of starting a business in an economy by recording all procedures officially required by an entrepreneur to formally start and operate a business, as well as the time and cost required to complete these procedures. It also records the minimum paid up capital that companies must deposit before registration. To make the data comparable across economies, EoDB uses several assumptions about the business and the procedures. It assumes that all information is readily available to the entrepreneur and that there has been no prior contact with officials. It also assumes that the entrepreneur has no illegal financial transaction during the process. Finally, it assumes that the business:

  • Is a 100% domestically owned limited liability company,
  • Has between 10 and 50 employees.

The World Bank has laid down 10 different parameters upon which 190 countries around the World are evaluated in the index, and these indices includes:

  • Starting a Business
  • Dealing with Construction Permits
  • Access to Electricity
  • Property Registration
  • Access to Credit
  • Protection to Minority Investors
  • Payment of Taxes
  • Cross Border Trading
  • Enforcing Contracts
  • Resolving Insolvency.

In accordance to The World Bank’s 2017, Nepal ranks 107 in the Ease of Doing Business Report, dropping 7 places from the year 2016.

Some of the Importance of Ease of Doing Business:

  1. Opening doors for Foreign Direct Investment
    Good scores in EoDB reflects in the probability of an increment in the Foreign Direct Investment of the country. Multinational companies would ideally want to invest in nation with good environment for business. In the age where companies strive for higher level of profits, outsourcing key elements of business is crucial to multinational companies. Hence, a safe heaven for these companies would be to invest in a country with good EoDB score.
  2. Benchmark for Infrastructure Development
    EoDB also acts as a benchmark for the government of a country for infrastructure development. Taking the score of previous EoDB score as a baseline government can take significant steps to foster the infrastructure development in the country.
  3. Indicator to measure business environment for Entrepreneur
    EoDB score also is a key indicator for an entrepreneur wanting to start out his/her own venture. With the shift in the paradigm in entrepreneurship, the number of startups in developing nation is in the rise as compared to the number of  startups in developed nations. This signifies that startups have reached a level of saturation in developed nations which has opened doors for developing nations. With multinational companies wanting to expand its services, a good EoDB score would reflect a good business environment and the possibility to attract more investments.

Heavily dependent on Official Development Assistance (ODA) and Foreign Direct Investment (FDI) for economic development, the importance of EoDB plays a crucial role in our economy. With Capital Expenditure of 56.30 % which stands at 5 year low, good scores in EoDB would be the golden ticket to our government to attract pool of investors. Hence, it is high time for Government of Nepal to work on the parameters of Ease of Doing Business to improve the EoDB score.