Egypt is the top country in reforming investment regulations. Sherine Abdel-Razek leafs through the Doing Business report Attendants at the Euromoney conference in September, 2006, recall how furious Minister of Investment Mahmoud Mohieddin was when talking about the World Bank's Doing Business 2007 report published at the time. The report ranked Egypt 165th among 175 of countries classified according to how easy it is to do business in the country. Mohieddin described the report as unfair since it not only ignored all the macro-economic reforms taking place, but also did not identify the real challenges facing Egyptian businesses, such as financing, dispute- settlement, land acquisition procedures and bureaucracy. A year later and in particular last week, the new issue of Doing Business is making Mohieddin smile. In its fifth annual report on the world business environment, the World Bank ranked Egypt the world's top reforming country, saying that "reforms went deep". Egypt had achieved improvements in five of the 10 categories affecting business tracked by the World Bank. Being the top reformer in the region and worldwide, greatly improved its position in global rankings, coming in at 126 out of 178 economies surveyed this year. Regionally, Egypt is surpassed by many smaller economies such as Saudi Arabia (ranked 23), Israel (29), Kuwait (40), Oman (49), United Arab Emirates (68), Jordan (80), Lebanon (85) and Tunisia (88). Other notable reforms found in the region were in Tunisia, Djibouti, Israel, Jordan, Kuwait, Morocco, and the West Bank and Gaza. Other top reformers this year include Saudi Arabia, Croatia, Ghana, Macedonia, Georgia, Colombia, Kenya, China and Bulgaria. In all, 200 positive reforms in 98 economies were introduced between April 2006 and June 2007, according to the report. Egypt cut the minimum capital required to start a business from LE50,000 to just LE1,000, and halved the time and cost of start-up. It reduced fees for registering property from three per cent of the property value to a low, fixed amount. Other reforms include easing bureaucracy obstructing construction permits, launching new one- stop shops for traders at Egyptian ports, cutting the time to import by seven days, and the time to export by five. And it established a new private credit bureau that will soon be making it easier for borrowers to get credit. The report, prepared in collaboration with the International Finance Corporation (IFC), assesses regulations affecting 10 stages of a business's life. These are starting a business, dealing with licences, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, and closing a business. In the previous year, Egypt had only introduced two reforms. Economies are ranked on the number and impact of reforms. First, the World Bank selects the economies that reformed in three or more of the Doing Business topics. Second, it ranks these economies on the ease of doing business from the previous year. The larger the improvement, the higher the ranking as a reformer. To shed more light on the steps taken by reformers, the report this year presented 11 case studies for reformers; Egypt's tax regime reform was one. The study showed how Egypt succeeded in adding one million new taxpayers. Back in 2004, the report noted, when Prime Minister Ahmed Nazif's cabinet came to power, tax evasion was the norm and mutual distrust between taxpayers and tax authorities was rampant. There were also 8.2 million people employed in the informal sector, and Egypt charged tax rates as high as 32-40 per cent on corporate income -- more than twice the 15 per cent in Jordan and Lebanon. And it was the second worst in the region with regards to ease of paying taxes. The scene changed radically in 2005 when the new tax law was introduced, where tax exemptions were eliminated, tax rates reduced and rules clarified. Also, the taxation administration became more taxpayer- friendly. As Minister of Finance Youssef Boutros Ghali stated, "the point of the new law is to say what you want: whatever claim you make, we believe you, no questions asked. But you will be held criminally responsible and accountable for your claims." The report quoted Ghali as saying that the overall income tax revenue, both that of corporate and personal income, increased from seven per cent of GDP to nine per cent in just one year of enforcing the new tax law. However, as the report put it, rankings on the ease of doing business do not tell the whole story since the indicator is limited to business regulations. It does not account for a country's proximity to large markets, the quality of its infrastructure services, security of property from theft and looting, the transparency of government procurement, macro-economic conditions or the underlying strength of institutions. Egypt still needs more reforms in the other areas covered by the report, such as employing workers, protecting investors, paying taxes, enforcing contracts, and closing a business. For example, a medium-sized company working for a year has to make 36 different tax and mandatory contributions (corporate tax, social insurance contributions, stamp tax, etc), which consumes some 711 hours a year. This is compared to a regional average of 25 taxes and 236.8 hours. "Egypt has taken strides in the right direction by introducing these reforms," Mohieddin was quoted as saying in the report. "However, we still have a long way to go, maybe another 15-20 years before Egypt can accomplish the more difficult task of eliminating illiteracy, improving health conditions, and introducing democratic governance."
