Tahmina Shafique The Complete Portfolio

12Sep/080

Rebuilding and reforming

A few years back, having spent more than two weeks running from one desk to another at the Dhaka City Corporation for a trade licence, Jalil Rahman was about to give up and go back to his village in Naogaon.

‘I came to Dhaka in the hope of starting a business,’ he recalls. ‘I had sold the last piece of land that my father left us and come to a cousin’s house. He had told me the prospect of opening a decent furniture shop is immense. However, little did I know about the bureaucratic process that lay ahead.’

Soon Jalil realised that running to countless desk with the forms was a complete waste of time and that all he needed to do was bribe the officials. ‘I paid about Tk 4,000 for my way through and Tk 1,000 more for the forms to be filled up properly.’

Jalil now has a furniture shop at Panthapath in the city.

‘Trade licence was the end of it,’ he says. ‘Money has always been an issue for me. Two years after I started the shop, I ran into a serious financial crisis. I had no choice but to apply for a loan. That was another nightmare.’

At the Sonali Bank, one of the leading nationalised commercial banks in the country, Jalil was asked for countless documents. ‘I had no idea what those documents were about and my application just gathered dust for months.’

Jalil’s is not an isolated case.

Businessmen across the country face and complain about the hassle of starting up, running or closing down a business. ‘Why should it take so long and so many procedures to allow a person to start a business in Bangladesh, compared to much fewer procedures and days in the US, the UK and even Thailand?’ Lila Rahman, an owner of a boutique shop based in Dhanmondi, asks. ‘In a country like Bangladesh, where income and growth are major issues, you expect that people should be encouraged to start a business by making the process as friendly as possible. But the reality is quite different.’

Even bigger businesses call for desperate actions. ‘I still remember how we had to run to 32 different desks with documents for exporting our goods,’ says Rubana Huq, CEO of Mohammadi Group. ‘Fortunately, just before Ramadan, the government took an initiative to keep all the depots open except Eshak 24/7. Even if our trucks reach during the early hours of dawn, we are able to hand the documents over.’

‘Accommodation in the depots still continues to be challenging,’ she adds. ‘The trucks, at times, had to wait a long time before they are unloaded. Recently, it took us 72 hours to unload 13 trucks. This is a clear indication that there is a need for massive improvement.’

The infrastructure and capacity problems aside, bureaucratic bottlenecks and regulatory impediments, businesspeople complain, hinder the growth of business in Bangladesh. The constraints to the growth of business are numerous. Several studies indicate that Bangladesh needs to improve significantly. According to the recent World Bank Group’s Doing Business 2009 report, Bangladesh has achieved significant improvement in three of the ten indicators covered, and yet, its global ranking has slipped by a few places – to 110 out of 181 countries.

Syed Akhtar Mahmood, senior program manager, IFC Bangladesh Investment Climate, Fund and one of Bangladesh’s leading global experts on regulatory reforms, explains this paradox: ‘The world has become much more competitive even with regard to the pace of reforms. All kinds of countries are going big with reforms. For example, the Doing Business 2009 list of the top ten reformers includes countries such as Senegal, Liberia, Burkina Faso and the Kyrgyz Republic. Countries now have to run to remain in the same place and run faster to move ahead. Bangladesh’s regulatory reform efforts during the past year are commendable but we now need to go for faster and bolder reforms.’

Over the years, the trend for Bangladesh in this ranking has been downward, particularly due to the costs of dealing with licences, the number of signatures required for importing and exporting, and overall bureaucracy involved in starting a business.

Experts agree with these assessments. ‘Most of the requirements for regulation of business commencement and closures are derived from the earlier colonial legacy,’ says Professor Muzaffer Ahmad, chairperson of the Bangladesh chapter of the Berlin-based Transparency International. ‘There is a need to update and liberalise the overall legal structure.’

‘The regulatory business environment has been costly and poorly administered. Laws and regulations that govern business activities are mostly out of date, inadequate, inaccessible and ineffective,’ says Abdul Matin Khasru, a former law minister. ‘Citizens, not just businessmen, have had to go through terrible forms of harassments and all kinds of bureaucratic processes due to the poor regulations. Areas outside Dhaka call for further desperate measures, as the situation is worse and the overall administration and regulations are in a terrible state.’

‘These laws and regulations need to be reviewed and the Law Commission cannot do it unless requested by the government. Therefore, a commission can look into these reforms, make recommendation and monitor the implementation,’ says Muzaffer Ahmad.

He cites the example of countries such as the United States where there are regulatory bodies for food and drug, and the system is transparent and the monitoring is strict and effective.

In order to tackle some of these problems and promote a conducive and business-friendly investment climate, a 17-member Regulatory Reforms Commission was formed by the government in October 2007. The commission was tasked with updating the decades-old rules and regulations of the country so as to infuse dynamism into governance, administration and the economy.

The commission focuses primarily on cutting through the layers of red tape that surround and affect entrepreneurs. ‘The aim of the commission is essentially focus on the rules related to the country’s investment, commerce and trade that are complex and fraught with procrastination,’ says Apurba Kumar Biswas, CEO of the commission. ‘Apart from that the commission’s aim is to look into various issues that call for reforms – pensions, services and more.’

The working areas of the commission include identifying all rules, by-laws, and government orders in force in Bangladesh; identifying unnecessary rules, sub-rules and making recommendation for repealing those; and examining necessary rules and orders and identifying all complexities and procrastination created by the existing rules.

As part of its work, the commission prepares recommendations for necessary reforms in existing rules and government orders to simplify them and remove red tapism, and ensure due public services.

‘Chaired by Akbar Ali Khan, the commission truly feels that the country is neither overregulated nor under-regulated – rather ill regulated,’ says Biswas. ‘Therefore, the focus is to examine and research some of the areas that require reforms or amendments and make these recommendations, and once approved, pass it on to the relevant ministries. Having done so, the commission is also involved in the monitoring phase, ensuring weekly updates so that the old age practice of shelving away documents is limited.’

Some of the major recommendations of the commission in nearly a year of operations include processing and approval of foreign private loans, formulating necessary rules and regulations for recognising private courier services, amendment to the land registration law, reforming location clearance certificate and environmental clearance certificate rules, streamlining the duty drawback and exemption system, and simplifying the capital machinery import clearance system. These recommendations are in various stages of implementation. Till date, the commission has made a total of 33 recommendations, eight of which are under implementation.

Critics of the commission say legal complexities and lengthy procedures do not affect the businesses alone. Major public utilities such as transport, courier service, land registry, certificates, pension funds and many more are entangled in the bureaucratic process and legal complexities.

‘I strongly feel that the Regulatory Reforms Commission should focus on more than just business-related rules and regulations,’ says Muzaffer Ahmad. ‘Specifically, in the case of public utility services, there is a major need for the age-old laws to be amended.’

‘The commission has had a wider focus than just business-related rules and laws,’ says Biswas. ‘A high-powered task force focused on land administration has recently completed an extensive study tour to India, where they saw for themselves the status of reforms in this field that have led to a simplified land administration framework. The task force is currently in the process of finalising its report for submission to the commission.’

A generally unknown facet of life in Bangladesh that the commission has focused on recently is the status of the mushrooming courier service providers in the country. According to the Post Office Act, 1898, courier services are illegal, and should be penalised. However, it is well-known that such services are integral to meeting the demand that is currently left unfulfilled by the government’s official postal system.

‘It’s strange that courier services in our country have been illegal for over a century,’ says Rajib Ahmed, a banker. ‘But without them, it would be very difficult to conduct business and ensure that our correspondence gets where it needs to be.’

To address this issue, the commission has recently recommended amendment to the Post Office Act, 1898, and the draft amendment has been finalised by the posts and telecommunications ministry in consultation with the stakeholders and sent to the Cabinet Division for approval by the council of advisers.

The commission has also recently turned its focus on the pensions system. Although different schemes have been undertaken over time in preventing tardiness and complications in providing retirement facilities and ensuring payment of pensions to retired government employees, the reality on the ground has remained more or less unchanged.

‘The commission has received many requests from people at various levels to tackle this issue, and responded by drafting recommendations for significant changes to the pension rules and regulations to reduce procedural complexities and curb inherent corruption in the existing process,’ explains Biswas.

The major recommendations focus on automatic processing of pension for public servants, removing the need for applications. Given this is effectively implemented fewer documents will now be required to claim pensions. As the retirees are compelled to submit complex documents such as citizen certificates and bonds to pension forms; implementation of this recommendation would mean that simply showing the national ID card or birth certificate will be sufficient.

Moreover, public servants who have no outstanding liabilities or cases in their careers will receive their pension cheque in their bank accounts within two and a half months before their LPR ends, and monthly pension cheques will be transferred to the recipient’s account automatically. Further, public servants who have worked 10 years in temporary posts under the revenue sector will be entitled to pension under the new recommendations. ‘It is now for us to give it time and see if this is actually effective and paves ways for an effective regulatory system in the country,’ says Muzaffer.

Next month, as the commission completes its first year of operation, there have been repeated calls for extension. Advocates of the reform agenda claim that the reform process is continuous and cannot be completed within just a year. Others have stated that continuity and sustainability of reform processes are central.

‘If the commission does not exist after the caretaker regime, subsequent political governments may find it difficult to implement the recommendations, or they may simply disfavour the current reform agenda. There may, therefore, be a need to ensure that the reform agenda continues, by ensuring that it is institutionalised in some form,’ says Khasru. ‘We must remember that the reform process is continuous and we must give it some time.’

There is also a drastic need for due diligence in ensuring that new and draft regulations and laws do not impede the investment climate, whether directly or indirectly. This would involve increasing the mandate of the commission to allow it to conduct impact assessments of draft and proposed rules and regulations.

‘Ideally, there should be a central unit which would vet proposed regulations from the point of view of business or citizens (whomever it is relevant for) and that central unit should ask the line ministries/agencies to justify their proposed rules or regulations. Currently, only the law ministry vets the proposed rules and regulations and it does so only through a legal lens, i.e. whether they are consistent with existing laws and other rules and regulations,’ says Syed Akhtar Mahmood.

He says the sponsoring ministries should be required to answer questions such as: What problem is the proposed regulation going to address? Is regulation needed or are there other ways of addressing the problem, such as through increased competition in the market? What are the expected impacts? Where stake-holders consulted and, if so, what were the results of the public consultation? How will compliance be achieved? Is the regulation comprehensible and accessible to users?

According to Mahmood, government officials at different levels have a role in regulatory reforms. ‘We are currently working with a group of 40 deputy secretary level officials who would be trained in private sector related issues and good practices over a six-month period. In addition, they would carry out exercises where they would take some proposed regulations and answer questions such as the ones above.’

As much as the commission’s work is being praised, many remain apprehensive about its administration and legality. ‘One of the major questions about the commission concerns the legality of its establishment, came as it did under a state of emergency,’ says a former minister on the condition of anonymity.

As President Gerald R Ford said when he first started a regulatory reform programme back in the 1970s, ‘A necessary condition of a healthy economy is freedom from the petty tyranny of massive government regulation. We are wasting literally millions of working hours costing billion of consumer’s dollars because of bureaucratic red tape.

‘Although most of today’s regulations affecting business are well-intentioned, their effect, whether designed to protect the environment or the consumer, often does more harm than good. They can stifle the growth of our standard of living and contribute to inflation.’

His words held true for the US then and hold true for Bangladesh now.

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