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Doing business

Filipe Naigulevu
Tuesday, December 05, 2017

BUSINESSES are extremely critical to any country as it provides goods, services and employment which in turn reflect economic growth.

In Fiji, an array of businesses has emerged over time from the major players to the small to medium enterprises (SMEs) that dominate the local scenery.

But certain factors within and outside of a country can affect businesses such as policies, market conditions such as demand and supply; interest rates, exchange rates, recession, inflation, taxes to name a few.

This also includes the ease of doing business, which reflects how simpler and friendlier regulations are for businesses in a particular country.

This week, we place our focus on the ease of doing business in Fiji, processes involved in starting a business and the costs of doing business in Fiji.

The ease of doing business looks at number of procedures, time and cost for a small to medium-sized limited liability company to start up and formally operate.

The ranking is also determined on several factors such as dealing with construction permits, getting electricity, registering property, getting credit protecting minority investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency.

Taking a look at our ease of doing business, Fiji is ranked 101 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings.

Ease of Doing Business in Fiji averaged 73.40 from 2008 until 2017, reaching an all-time high of 101 in 2017 and a record low of 43 in 2008.

The ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation stronger protections of property rights.

Economies with a high rank (1 to 20) have simpler and friendlier regulations for businesses.

Fiji's ranking deteriorated to 101 for the World Bank's standings in 2017 from 97 slipping from the previous years despite strong efforts to improve the ranking.

Over the past seven years, the overall ease of doing business ranking improved significantly from 2011 to 2012, before deteriorating between 2013 and 2015, and thereafter improving slightly in 2016.

Cost effectiveness, reduction in the time required to start a business as well as lower fees at the Business Registrar resulted in an improved rank in three out of the 11 categories of the ease of doing business survey including:

* starting a business;

* protecting minority investors; and

* trading across borders.

The World Bank has also noted that Fiji has improved its distance to frontier (DTF) score by 0.04 percentage points from 60.74 to 60.70.

The DTF measure shows the distance of each economy to the "frontier," which represents the best performance observed on each of the indicators across all economies in the Doing Business sample since 2005.

An economy's distance to frontier is reflected on a scale from 0 to 100, where 0 represents the lowest performance and 100 represents the frontier.

A flagship report released by the World Bank titled Doing Business 2018 - Reforming to Create Jobs also provided an objective basis for understanding and improving the regulatory environment for business for the East Asia and Pacific region.

The report also highlighted a few business reforms in Fiji which affected the overall standings of ease of doing business.

It noted that Fiji made starting a business easier this year by reducing the time required to start a business and less costly by reducing fees at the business registrar.

The report stated that Fiji also strengthened minority investor protections by introducing greater disclosure requirements for related-party transactions.

It outlines several reforms which caused complications such as suspension of credit bureau operations which made it more difficult to gain access to credit information.

The report stated that Fiji had made starting a business more difficult in 2013 by requiring new companies to apply for a business licence and also obtain a certificate from the National Fire Authority and a letter of compliance from the Ministry of Employment, Productivity and Industrial Relations.

The World Bank also noted that starting a business was more difficult by adding a requirement to obtain a tax identification number when registering a new company in 2012 and paying taxes more complicated for companies by transferring the fringe benefit tax liability from employees to employers and by limiting the deductibility of mandatory contributions in 2014.

It also stated that Fiji made obtaining a construction permit more expensive by implementing a fee for the fire department clearance in 2013 and Fiji more difficult through new regulations that added new procedures related to health, fire safety, and water and sewerage connections 2009.

Registering a property was more difficult by requiring parties to a property transaction to obtain a capital gains tax clearance certificate from the Fiji Revenue and Customs Services in 2013, the World Bank stated.

But strong efforts have been made by Government to improve our ease of doing business rankings including various institutions, agencies and ministries involved.

Government earlier sought the assistance of the World Bank and also set-up a special taskforce including the Reserve Bank of Fiji to address relevant areas that will help improve Fiji's ease of doing business ranking.

The FRCS has also constantly reviewed their tax and Customs legislation and processes to improve ranking, but has also depended on the trust and honesty on the part of businesses to be voluntarily "compliant".

The Ministry of Industry, Trade and Tourism also recently partnered with the Singapore Cooperation Enterprise with an aim to eliminate unnecessary processes in applying, processing and approving building permits.

Meanwhile, the central bank in its September report stated that the June 2017 business expectation survey (BES) results indicate an overall improvement in business sentiments alongside intentions of expansion and investment across major sectors of the economy.

It noted that positive sentiments for general business conditions in the short term (next six months) improved notably from the previous survey while business sentiments in the medium term (next 12 months) remained favourable similar to the December 2016 survey.

A net 51.0 per cent of respondents expect overall business conditions to improve in the short term, while a net 72.0 per cent of respondents shared similar sentiments for the medium term.

The positive outlook for business conditions was consistent with positive sentiments expressed for higher sales, production and investment.

Firms also expect to increase productive capacity through investment in plant and machinery and buildings as well as hiring more part-time workers.

The review also highlighted fewer firms anticipate the cost of doing business to rise as reflected by lower expectations for wage growth and raw material prices.

However, more firms expect financing costs to rise over the short and medium term. On major risks to business activity, adverse weather conditions and policy uncertainties represent major constraints in the next six to 12 months.

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