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R&D: Measuring business friendliness


THE Business Environment Index (BEI) 2012, which is the only diagnostic tool designed to measure the business-friendliness of local governments, was recently launched at Monash University Sunway campus.


Deputy President (Strategy) Professor Mahendhiran Nair says that the index provides a valuable platform for Malaysian researchers, policymakers and the industry to identify ways to strengthen government systems.

It also allows policymakers and industry players, he adds, to obtain feedback and insight to decide on policy and strategies so that they work for Malaysia.

The 2012 Business Environment Index, or BEI, is a Malaysia-specific diagnostic tool to benchmark and rank local business environments that can be influenced by federal, state, and local policies and regulations.

Monash University Sunway campus’ School of Business, through senior lecturer Dr Jane Terpstra Tong, provided its expertise on the methodology employed in data collection for the BEI.

The index was designed by The Asia Foundation to measure business-friendliness of local governments through its Economic Governance Index (EGI) initiatives. The EGIs are already in use in Cambodia, Vietnam, Indonesia, Sri Lanka, Bangladesh, and now, Malaysia.

Dr Yeah Kim Leng, Group Chief Economist at RAM Holdings Berhad says that Malaysia’s success in overcoming the middle-income trap hinged critically on the ability to unleash its entrepreneurial talents and innovation capabilities.

“High-level initiatives designed to foster a business-friendly environment like the Economic Transformation Programme and the the Government Transformation Programme have laid the right track; what is needed now is an enabling environment. We see the BEI as a tool to bridge the remaining gaps in information, perception and performance on the ground,” he says.

The index identifies high and low-performing districts and reveals the successes and challenges faced by the SMEs – experiences critical to a robust and dynamic private sector in Malaysia.

In Malaysia, 635 randomly-drawn SMEs in six states and 11 districts were asked to share perceptions of their local business environment. 

The 11 districts were then ranked in order of business friendliness across nine areas of economic governance that are relevant to local economic growth, including entry costs, transparency, informal charges, property rights, and crime and security. 

According to the BEI pilot study, Kemaman in the state of Terengganu ranks the highest followed by Sepang in the state of Selangor. Ampang Jaya ranks the lowest while Petaling Jaya ranks the second lowest. Both districts are located within the state of Selangor.

The BEI rankings of Petaling Jaya and Ampang Jaya are dramatically different from their scores awarded in the government’s Star Rating System in which they both scored among the highest.  A key difference between the two assessments is that the BEI relies on the experience and perceptions of local business people while the Star Rating System focuses on the internal structure and various aspects of government functions and uses internal officers as judges.

BEI advocates the belief that by combining the results of the BEI and the Star Rating, it would be possible to develop a better understanding of both the strengths and weaknesses of current governance practices.


The full report can be accessed

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