How Middle East countries are becoming more efficient at doing business

Economic diversification, regulations reforms and improving gender equality have helped the regions's countries improve their efficiency.

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In the World Bank’s latest country rankings of business efficiency, the top 10 improvers, based on reforms undertaken, were Brunei Darussalam; Kazakhstan; Kenya; Belarus; Indonesia; Serbia; Georgia; Paki­stan; the UAE; and Bahrain. The Doing Business report cites research that demonstrates that better performance in the rankings is associated with lower levels of income inequality, thereby reducing poverty and boosting shared prosperity.

In the past year, according to the report, the Middle East and North Africa countries implemented the most reforms of any year since 2009, with 35 reforms across 15 of the region’s 20 economies. As the region’s macroeconomic headwinds continue owing to low oil prices and slower investment activity, business environment improvements are essential to maintain competitiveness.

Improvement in business efficiency is also related to the reduction of gender disparities. For example, Saudi Arabia’s unemployment target set out in Vision 2030 is to reduce unemployment from 11.6 per cent to 7 per cent. This is attainable only if more women enter the labour force over the coming decade and a half. Entrepreneurship is key to having more women in the economy. According to the report 70 per cent of Mena economies are creating barriers for women entrepreneurs. Despite these barriers most Mena countries improved their rankings, with obvious exceptions such as Libya, Yemen, and Syria.

Commonly found among most regional oil-dependent economies this year is their drive to reforms to diversify away from oil. The measures include eliminating fuel subsidies, reducing public sector jobs and wage bills, privatising state-owned enterprises and diversifying fiscal revenues away from oil through higher direct and indirect taxes. These reforms are expected to transform at least part of the old social contract and enhance economic efficiency over the coming years.

The UAE was ranked 26th overall, up from 34th place last year. The report highlights three important reforms in the UAE over the past year: a) made it easier to start a business by streamlining name reservation and articles of association notarisation; b) eased construction permits by implementing risk-based inspections; and c) protected min­ority investors by increasing shareholder rights and role in major corporate decisions.

Bahrain rose to 63rd from 66th. Among other things Bahrain’s ranking improved due to: a) the enhancement of its infrastructure; b) facilitation of procedures at the King Fahd Causeway; c) reduction of the minimum capital requirement for starting a business; and last but not least d) reduction of the minimum capital requirement for starting a business. Bahrain’s initiative to ensure easy procedures at the King Fahd Causeway has improved links with Saudi Arabia, the largest economy in the region which will boost the logistics sector, as well as the industrial sector.

Oman came in 66th, up from 69th the previous year. The country was first in the GCC in the category Starting a Business, ahead of the UAE (ranked 4), Bahrain (5), Qatar (6), Saudi Arabia (14) and Kuwait (20). Oman made starting a business easier by removing the requirement to pay the minimum capital within three months of incorporation and by streamlining the registration of employees.

Tunisia and Qatar are ranked 77th and 83rd respectively. Tuni­sia dropped two places, while Qatar fell 15. Qatar’s drop in ranking is the widest drop within Mena. This drop can possibly be attributed to its decision to weaken minority investor protections by decreasing the rights of shareholders in major decisions and by diminishing ownership and control structures, as per the report.

The Middle East’s largest economy, Saudi Arabia, improved its ranking by two notches to 94. Saudi Arabia is ranked 15th in dealing with construction permits, 28th in getting electricity and 32nd in registering property. However, starting a business is still a hurdle (147th) and resolving insolvency is equally inhibiting (169th).

Despite Egypt’s economic crisis, its ranking rose four places in the index for 2017 compared to last year’s 122nd. Egypt took fifth place among economies in the Mena region in terms of the ease of doing business, scoring 56.64 points and was preceded by the UAE, Turkey, Saudi Arabia and Jordan. Egypt was among the report’s top countries that have improved in the category of Starting a Business, rising 31 spots from the year before to register rank 39th.

The Mena region is faced with an exceptionally challenging environment because of low oil prices, conflict and fiscal imbalances. Fiscal consolidation in a difficult sociopolitical environment and spillover from conflicts is also creating challenges. Policymakers in the region should not become complacent about the need to enhance business efficiency via entrepreneurship and steps that help create a better environment in which to do business.

As all regional economies face a “new normal” in their economies, they will be required to maintain their business friendliness and competitiveness while making some hard policy choices for their citizens.

John Sfakianakis is the director of economic research at the Gulf Research Centre in Riyadh

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