Niveen Wahish reports on Egypt's improvements in business and competitiveness As far as the ease of doing business goes, Egypt is once again among the top-10 world reformers. It is the fourth time Egypt has made it into the top 10 of the IFC-World Bank Doing Business Report. The 2010 report is the seventh in an annual series. The top-10 table includes economies that managed to reform three or more of a checklist of 10 areas relevant to starting a business, as covered by the Doing Business Report. Egypt also climbed in ranking from 116th position to 106th position among 183 countries examined by the report for ease of doing business overall. On another positive note, Egypt also moved up 11 places to 70th position on this year's Global Competitiveness Index (GCI) issued by the World Economic Forum. The GCI covers 133 countries. The report looks at 12 pillars of competitiveness, namely institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, market efficiency, labour market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation. According to Samir Radwan, board member and advisor to the General Authority for Investment and Free Zones, while the two rankings are based on different criteria, the fact that Egypt has improved its ranking at a time of crisis reveals that "reforms pay off". The Doing Business 2010 examines reforms made between June 2008 and May 2009. Economies are ranked on the number and impact of reforms. According to the report, Egypt's reforms this year included facilitating dealing with construction permits by issuing executive articles for the 2008 Construction Law and eliminating most preapproval requirements for construction permits. The report also cited that contract enforcement and dispute settlement was expedited with the creation of commercial courts. Moreover, access to credit information has expanded with the addition of retailers to the database of the Private Credit Bureau. And starting a business was eased and made less costly by the removal of minimum capital requirements. But Radwan says some chronic problems still remain. These include property registration, where despite cutting costs, bureaucratic obstacles remain. Another urgent issue is that of the protection of investors, where Egypt fell from 70 to 73 in the overall ranking due to strikes and extended disputes that deter investors. Radwan also highlighted the need to improve internal trade and logistics. Shipping from China to an Egyptian port is often cheaper than transporting and storing goods domestically. But what Radwan believes the issue that needs attention most is that of closing a business. A draft law aimed at reforming this area was in the making but never materialised. Radwan laments the fact that business closure is viewed as a criminal act. "That should not be the case," he said. Employing workers is another weakness in the Egyptian economy according to Radwan, and also according to both reports. The Global Competitiveness Report (GCR) ranks Egypt very low, at 126th, in labour market efficiency. The report states: "the labour market continues to be over-regulated, which diminishes its efficiency. Although some progress has been achieved, the persisting labour market rigidities are particularly worrisome. Inflexible hiring and firing procedures keep the country's many unemployed young people, a large number of whom are well educated, from entering the formal labour market, raising the risk of a degradation of human capital, brain drain from the country and potentially causing social problems." Radwan points out that more jobs could become available as the overall economic growth rate increases, but something needs to be done, through education, about the quality of the labour force and its productivity. He wonders why educational reform has so far failed: "We should be leapfrogging by taking on the experience of other economies that have applied successful reforms and adapting it to our environment." The top-10 chart of reformers in Doing Business 2010 is led by Rwanda and includes Liberia, Moldova, Tajikistan, the United Arab Emirates (UAE), Colombia, the Kyrgyz Republic, Macedonia FYR and Belarus. Singapore is the top-ranked economy on ease of doing business for the fourth year in a row. Egypt is cited amongst countries that follow a long-term agenda aimed at increasing the competitiveness of their firms and economy. It was also among those that are carrying out comprehensive reforms covering eight or more of 10 enumerated areas. And it is said by the report to be an "inclusive" reformer, involving all relevant public agencies and private sector representatives. Among the 183 economies covered by Doing Business 2010, the Middle East and North Africa was found "to have picked up the pace of business regulatory reform faster than any other region in a year of global financial uncertainty". Some 17 of 19 economies in the region passed regulatory reforms to create opportunity for local entrepreneurs. Egypt, Jordan and the United Arab Emirates were among the most active reformers. Eight of the region's economies have reduced or eliminated their minimum capital requirement since 2005. Five of these eight used to have the highest requirements in the world -- up to $120,000 in Saudi Arabia until 2007. On the GCI, Arab countries were active as well, with Qatar coming 22nd followed by the UAE in 23rd position and Saudi Arabia at 28th, Bahrain at 38th, Kuwait at 39th, Tunisia at 40th, and Jordan at 50th. But Radwan laments Egypt's coming in ninth among 13 Arab countries. Even in the Doing Business 2010 report it won only an average ranking when compared to other Arab countries. The two reports, though unrelated, complement each other. Some of the information that is not included in the Doing Business ranking, such as security, macroeconomic stability, corruption, skill levels, or the strength of financial systems, is found in the GCR. For example, the GCR states that among Egypt's main competitive strengths are "the sheer size of its market which allows businesses to exploit economies of scale; the fairly solid private institutions; and the satisfactory quality of the transport and energy networks." Yet it sees that, "Egypt continues to struggle with serious challenges related to macroeconomic stability. Although government debt has been reduced somewhat from 105.8 per cent of GDP in 2007 to 85.9 [per cent] in 2008, the budget deficit and inflation continue to rise." The GCR places Egypt at a transitional stage of development between countries that compete based primarily on unskilled labour and natural resources and those that begin to develop more efficient production processes and increase product quality where "competitiveness is increasingly driven by higher education and training, efficient goods markets, well- functioning labour markets, sophisticated financial markets, a large domestic and/or foreign market and the ability to harness the benefits of existing technologies". In the third stage of development countries compete with new, unique and innovative products. The GCR urges countries to stay the course of reform, saying, "Today's difficult economic environment underscores the importance of not losing sight of long-term competitiveness fundamentals amid short-term urgencies." It adds: "A competitiveness-supporting economic environment can help national economies to weather business cycle downturns and ensure that the mechanisms enabling solid economic performance going into the future are in place." Similarly, the Doing Business 2010 report says that reforms carried out are as timely as ever. It showed that businesses in low-income economies on average still face more than twice the regulatory burden that their counterparts in high-income economies do when starting a business, transferring property, filing taxes or resolving a commercial dispute through the courts. As a result, the report says that developed economies have on average 10 times as many newly registered firms per adult as Africa and the Middle East, and a business density four times that in developing economies. It warns that regulatory burdens can push firms, and employment, into the informal sector where neither are registered, pay taxes, and have limited access to formal credit and institutions. Moreover, workers do not benefit from the protections that relevant laws provide. "Almost two-thirds of the world's workers are already estimated to be employed in the informal sector. Most are in low and lower middle income economies."
