Jordan Times
Thursday, September 9, 2004
Jordan tops Mideast states for improving investment climate World Bank, IFC
Middle Eastern countries struggle to reduce red
tape for business, miss large growth opportunities
WASHINGTON (Agencies) Jordan made the most progress among Middle Eastern
countries in improving its investment climate last year but still maintains
along with other nations in the Middle East and North Africa some of the largest
capital requirements for startup businesses anywhere in the world, according to
a new report from the World Bank Group.
Doing Business in 2005: Removing Obstacles to Growth, a report co-sponsored by
the World Bank and International Finance Corporation (IFC), the private sector
lending arm of the World Bank Group, finds that investment climate reforms,
while often simple, can help create job opportunities for women and young
people, encourage businesses to move into the formal economy and promote growth.
Between 2003 and 2004, for example, Morocco witnessed a jump of 21 per cent in
new business registrations after simplifying its entry procedures.
However, the report, which benchmarks regulatory performance and reforms in 145
nations, finds that poor nations, through administrative procedures, still make
it two times harder than rich nations for entrepreneurs to start, operate, or
close a business. And businesses in poor nations have less than half the
property rights protections available to businesses in rich countries.
Jordan reduced the time it takes to register a new business by nearly nine weeks
and is one of the few nations that gives regulators an incentive to maximise the
value recovered for creditors when a business must close. Yet the government
still requires a new business to have minimum capital equivalent to 11 times the
nation's average per capita income.
In Saudi Arabia and Yemen, the minimum capital requirement is 15 times average
income; in Syria, the requirement is 50 times average income. By comparison,
more than 40 nations worldwide have no minimum capital requirement for a startup
business.
Worldwide, rich countries undertook three times as many investment climate
reforms as poor countries last year. European nations were especially active in
enacting reforms.
The top 10 reformers for the most recent survey year were Slovakia, Colombia,
Belgium, Finland, India, Lithuania, Norway, Poland, Portugal and Spain.
Of the 58 countries that reformed business regulation or strengthened the
protection of property rights in the last year, only seven were in the Middle
East.
Only two nations in the region, Tunisia and Israel, ranked in the top quartile
of the countries surveyed on the ease of doing business. Both countries improved
further last year.
Tunisia improved the recovery rate in bankruptcy and increased the coverage of
borrowers in its public credit registry.
Israel established a new procedure for debt recovery in the courts, which takes
less than seven months. Previously, it took a year for creditors to collect
overdue debt.
Among nations enacting reforms, Jordan improved the process for starting a new
business the most, by cutting the number of procedures from 14 to 11 and the
number of days from 98 to 36.
Still, Jordan is one of six Middle Eastern countries, together with Morocco,
Egypt, Saudi Arabia, Yemen, and Syria, on the list of 10 countries with the
highest minimum capital requirement for starting a business.
Algeria, Morocco and Yemen also reduced the number of days necessary to start a
business. Saudi Arabia reformed its public credit registry, nearly doubling the
number of borrowers with information available at the registry.
Poor countries that desperately need new enterprises and jobs risk falling even
further behind rich ones who are simplifying regulation and making their
investment climate more business friendly, said Michael Klein, World Bank/IFC
vice president for Private Sector Development and IFC chief economist.
Doing Business in 2005 updates the work of last year's report on five sets of
business environment indicators: Starting a business, hiring and firing workers,
enforcing contracts, getting credit and closing a business; expands the research
to 145 countries; and adds two new indicators, registering property and
protecting investors.
This year, Doing Business gives policy makers an even more powerful tool for
measuring regulatory performance in comparison to other countries, learning from
best practices globally, and prioritising reforms. Since last year, 13 countries
have asked to be included in the Doing Business analysis, indicated Simeon
Djankov, an author of the report.
Businesses in poor countries face larger regulatory burdens than those in rich
countries.
Poor countries impose higher costs on businesses to fire a worker, enforce
contracts, or file for registration; they impose more delays in going through
insolvency procedures, registering property and starting a business; and they
afford fewer protections in terms of legal rights for borrowers and lenders,
contract enforcement, and disclosure requirements.
In administrative costs alone, there is a threefold difference between poor and
rich nations. The number of administrative procedures and the delays associated
with them are twice as high in poor countries.
The payoffs from reform appear to be large. The report estimates that an
improvement from the bottom to the top quartile of countries in the ease of
Doing Business is associated with an additional 2.2 percentage points in annual
economic growth.
An indication of the payoff comes from Turkey and France, each of which saw new
business registration increase by 18 per cent after the governments reduced the
time and cost of starting a business last year.
Slovakia's reform of collateral regulation helped increase the flow of bank
loans to the private sector by 10 per cent.
The payoff comes because businesses waste less time and money on unnecessary
regulation and devote more resources to producing and marketing their goods and
because governments spend less on ineffective regulation and more on social
services.
Heavy regulation and weak property rights exclude the poor especially women
and younger people from Doing Business. The report finds that weak property
rights and heavy business regulation conspire to exclude the poor from joining
the formal economy.
Heavy regulation not only fails to protect women, young people, and the poor
those it was intended to serve but often harms them, said Caralee McLiesh, an
author of the report.
Doing Business shows that countries with simpler regulations can provide better
social protections and a better economic climate for businesspeople, investors
and the general public.
The report builds on noted economist Hernando de Soto's work, showing that while
it is critical to encourage registration of assets, it is as important and
harder to stop them from slipping back into the informal sector.
The top 20 economies in terms of ease of Doing Business are New Zealand, the
United States, Singapore, Hong Kong/China, Australia, Norway, United Kingdom,
Canada, Sweden, Japan, Switzerland, Denmark, Netherlands, Finland, Ireland,
Belgium, Lithuania, Slovakia, Botswana and Thailand.
The Doing Business project is the product of more than 3,000 local experts
business consultants, lawyers, accountants and government officials and
leading academics, who provide methodological support and review.