Vo. 8, No.
nance, political instability, tax rates,
corruption, access to land, security, in-formality, tax administration hassles,lack of human capital, rigid labourregulations and transportation, amongothers (Figure 2).
The South Asian average of perceptionof challenges to investment climate
masks country-specic obstacles to
investment. Hence, a closer look at
country-specic challenges to invest
-ment is warranted.
Around 20 percent of rms in Afghan
-istan perceived that crime, theft anddisorder were the biggest obstacles toinvestment. Other main obstacles werelack of adequate electricity supply
(17.9 percent), access to nance (16.8
percent), political instability (16.4 per-cent), access to land (12.2 percent) andcorruption (8.4 percent). Constraintssuch as tax rates, courts system, hu-man capital and labour regulationswere considered less worrisome than
the ones mentioned earlier. Speci
cally, about 45 percent of rms paid
extra for private security, whichincreased cost by 2.8 percent of annualsales. The number of electrical outagesin a typical month averaged 20 and it
lasted for 11.5 hours, inicting losses
of about 6.5 percent of annual sales.
Consequently, 71.1 percent of rms
owned or shared a generator, whichwas used to supply about 74.9 percent
of power demand by rms. It takes 46
days to get electrical connection uponsubmitting an application. Regarding
access to nance, only 3.4 percent of rms had a bank loan and 1.4 percentof them were using banks to nance
investments. Furthermore, 79 percentof loans required collateral and itsvalue amounted to almost 254 percentof the loan amount.
Around 43 percent of rms in Bangla
-desh perceived lack of adequate sup-ply of electricity as the main obstacleto investment. Other top constraints
were access to nance (34.9 percent),
political instability (11.4 percent),corruption (4.3 percent) and access
to land (4.1 percent). Specically, the
number of power outages in a typicalmonth averaged 101, which lastedfor 1.1 hours and increased cost by10.6 percent of annual sales. About 52
percent of rms owned or shared a
generator, which supplied 23.6 percent
of total electricity demand by rms. It
takes approximately 50 days to obtainan electrical connection upon submit-ting an application. Approximately
24.7 percent of rms used banks tonance investments and only 17.1 per
cent of total investment was nanced
by banks. Regarding corruption, 85
percent of rms reported that theyexpected to give gifts to public ofcials
to “get things done”, especially to getan operating licence, import licence,construction permit, electrical connec-tion and water connection. Mean-
while, 54.4 percent of rms expected
to give gifts during meetings with
tax ofcials and 18.4 percent of rmsidentied courts system as a challenge
to better investment climate.
Around 22 percent of rms in Bhutanperceived access to nance as the main
obstacle to better investment climate.The other major constraints were taxrates (12.6 percent), inadequatelyeducated workforce (10.5 percent),labour regulations (9.7 percent) andtransportation (9.1 percent). Access toland, courts system, electricity supplyand political instability were perceivedto be less problematic for investors.
Approximately 64 percent of rmsused banks to nance investments andalmost all rms needed loans. Fur
-thermore, 97 percent of loans requiredcollateral, whose value was about 283percent of loan. Investors felt that taxadministration hassles and high tax
rates (40.8 percent of prot
) were alsodiscouraging investors. Regardinghuman capital, there were virtually nopermanent skilled full-time workersin the manufacturing sector and only
23.3 percent of rms were offering
formal training. Cumbersome labourregulations and inadequately edu-cated workforce were also problem-atic for investors. While real annualsales growth and annual employmentgrowth were 17.9 percent and 13.1percent respectively, annual labourproductivity growth was just 5.7percent.
Approximately 35 percent of rmsidentied electricity as the main
obstacle to investment. The other mainchallenges were tax rates (16.8 per-cent), corruption (10.7 percent), tax ad-ministration hassles (8.5 percent), and
access to nance (4.5 percent). Political
Percepon of obstacles to beer investment climate in South Asia
Source: International Finance Corporation, Enterprise Surveys.
ElectricityAccess to financePolitical instabilityTax ratesCorruptionAccess to landCrime, theft and disorder Practices of the informal sector Tax administrationInadequately educated workforceLabour regulationsTransportationBusiness licensing and permitsCustoms and trade regulationsCourts28.714.3188.8.131.52.184.108.40.206.220.127.116.11.5051015Percent of firms2025303.3