One bomb raises the cost of doing business like messed up legislation. #Cost_of_Doing_Biz

Two weeks ago, REBEL ECONOMY blogged about how one bomb in the Sinai adversely affects the Egyptian economy.

President Sisi has his eye on a mega $8-billion expansion of the canal that aims to double daily traffic by 2023 and increase annual revenues to more than $13 billion by 2023, from just over $5 billion in 2014. Yet, none of this is meaningful if the government continues to resist structural reform which has left the economy floundering for years. It is also resisting the simple fact that there was likely a bomb on flight.

Given the above, Egypt’s President Sisi has gained even more ground to justify a security state and target militants because attracting foreign direct investment is his duty.  He argues that no one wants to invest in a country with violent attacks that target tourists.  Note: we would add — or raise the counterpoint — that no one wants to invest in a country with violent attacks that targets its own country’s citizens.

As Egyptian businessmen, economists, and security forces sort out the conditions on the ground to attract FDI, neighboring countries also compete for FDI.  A few indicators track such conditions that are highlighted in the World Bank’s Doing Business Report 2016.  In a nutshell, business reforms have picked up in the Middle East & North Africa, despite conflict.  Eleven countries in the MENA region introduced a total of 21 reforms that ease the costs of doing business — a record in the last 5 years.

Morocco and the UAE continue to lead the region in reform activity as both economies undertook four reforms each during the past year. Morocco made Starting a Business easier by eliminating the need to file a declaration of business incorporation with the Ministry of Labor. The UAE was the only economy in the region that reformed in the area of Enforcing Contracts. As a result, commercial disputes in the UAE are now resolved in 495 days, which is less than the average of 538 days in the high-income Organization for Economic Cooperation and Development (OECD) economies.

For some reason, Arab countries that are not in political transition, lead in passing business reforms.  Does that mean that we can expect to see more growth in small and medium businesses in the next five years for the “non Arab Spring” countries than their “Arab Spring” counterparts?  If so, this implies that heavy-handed–dare we say authoritarian– leadership will pounce on these business growth numbers to continue justifying its political power hold.

However, just like how a bomb raises the cost of doing business, so does messed up legislation.   The costs of starting a business remain astronomical for the average citizen across MENA countries.  Specifically, in some MENA countries, it costs almost one-THIRD of income per capita for local entrepreneurs to start their business, compared to less than one-THIRTIETH in the OECD.

Here is how the MENA countries ranked within the 189 countries surveyed in this year’s Ease of Doing Business Report.  Areas of improvement noted in parenthesis.

  • United Arab Emirates – (Dealing with Construction Permits; Getting Electricity; Protecting Minority Investors; Enforcing Contracts)
  • Turkey – 55 (Dealing with Construction Permits)
  • Bahrain – 65
  • Qatar – 68 (Trading Across Borders)
  • Oman – 70 (Getting Electricity; Trading Across Borders)
  • Tunisia – 74 (Paying Taxes; Trading Across Borders)
  • Saudi Arabia -82 (Registering Property)
  • Kuwait – 101 (Starting a Business)
  • Jordan – 113
  • Iran – 118
  • Lebanon – 123
  • West Bank & Gaza (Dealing with Construction Permits; Getting Credit)
  • Egypt – 131 (Protecting Minority Investors)
  • Pakistan – 138
  • Sudan – 159
  • Iraq – 161
  • Algeria – 163 (Dealing with Construction Permits; Starting a Business)
  • Morocco – 175 (Starting a Business; Getting Electricity; Registering Property; Paying Taxes)
  • Syria – 175
  • Yemen -177
  • Afghanistan – 177 (Getting Credit)
  • Libya – 188

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Filed under Analysis, PIDE (Policy, International Development & Economics), Politics

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