Ease of Doing Business in The Middle East and North Africa

Based on the report of the World Bank (WB) titled “Ease of Doing Business (EDB) 2017: Equal Opportunity for All”, the purpose of this article is to address what obstacles are before the ease of doing business and how the elimination of these obstacles contributes to the economic development in the region, by making a brief evaluation of the ease of doing business in the countries of the Middle East and North Africa (MENA). WB EDB reports emerged from the idea that measuring and reporting the efficiency of the government policies would encourage better policy development and implementation. It is seen that these reports, the 14th of which has been published this year, contribute more or less to the development of the legal and institutional framework related to the ease of doing business in each country.On the other hand, the report of this year shows that there is enormous difference between the ease of doing business of high and low income countries and there are more obstacles before women to start a business or find a job when compared to men. Within this framework, especially three indexescome to the forefront: starting a business, acquiring property and validity of agreements. Before beginning to evaluate the ease of doing business in the MENA countries within the context of economic development and natural resource wealth, it will be useful to underline the labor force of the women who have difficulties in using considerable human capital in these countries and the economic loss resulting from theirinsufficient participation in economic activities. Even though women constitute 49.6% of the world population, they correspond to only 40.8% of the formal labor force. Only one third of the small and medium size enterprises (SME) have at least one woman partner in the countries called emerging market economies including two biggest economies such as Turkey and Saudi Arabia. The loss in national income resulting from insufficient participation of women in entrepreneurship and labor force is 27%, which is an extraordinarily high rate. This rate is 19% in South Asia, 14% in Latin America and 10% in Europe.

The ease of doing business is basically evaluated within the framework of necessary procedure, period, start-up cost and founding capital in order to establish a new limited company.It is possible to enumerate other significant indexes as follows: ease of obtaining construction permits, ease of reliability of electricity supply, ease of obtaining the documents representing property rights, ease of access to loans, tax implementations, ease of exporting, validity of agreements, regulations related to bankruptcy proceedings and labor force market regulations. 137 countries introduced significant reforms which would facilitate the proceedings of opening and operating the SMEs in the period indicated in the report. Therefore, Denmark, Hong Kong, China, Korea, Norway, the United Kingdom, the USA followed New Zealand and Singapore which ranked as the first two countries in the new ease of doing business list. Despite this, 75% of the mentioned reforms were made by the emerging economies. Sub-Saharan African Countries introduced 25% of these reforms. This year saw the highest number of reforms made as of 2009 (35). The United Arab Emirates and Bahrein ranked among the top ten countries which made reforms the most quickly in the world. However, gender gap is at its highest level in the MENA in terms of ease of doing business and finding job. Especially the obstacles to female entrepreneurship come to the forefront in the MENA. Whereas reforms have been made in the countries of South Asia for the last 11 years, Pakistan has introduced only one reform.    

Ranks and Indexes of Ten Countries with the Highest Level of Ease of Doing Business and of the MENA Countries

The major obstacle before the ease of doing business in the MENA countries is lack of quality and efficiency of the legal and institutional framework.This lack results from both the structure of the legal and institutional framework and the lack of appropriate human capital. The lack of regulations especially related to legal protection of agreements in the MENA countries comes to the forefront. Lack of regulations related to the financial system, especially those related to the micro loan application which has been a significant financial mechanism for the last two decades in terms of participation of low-income individuals and women in the professional life poses another obstacle to the ease of doing business in the region. Within a more macro framework, regulations with respect to the financial system are away from creating a long-term, low-cost and sufficient loan volume. The legal framework and practice related to taxes which both constitute the primary resource for the maintenance of government services and are the tools for fairer income distribution and for significant promotion/deterrence poses another obstacle to the ease of doing business in the countries of the region. Such problems as significant difference between the tax system and the international taxation system and the presence of double taxation refer to considerable challenges of doing business especially for international investors. Within this framework, lack of supervision in both the real sector and the financial sector and taxation process should be emphasized. Above all, insufficient supervision prevents the produced goods and services from gaining an international nature. This situation leads important difficulties to arise in the affairs especially related to foreign trade.Lack of regulations regarding the labor force market which covers the prevention of any kind of discrimination including wages, working conditions and gender poses another problem for the ease of doing business.

Spot: The MENA countries need to introduce the reforms which will develop the legal and institutional structure of the market economy and the ease of doing business, which is required for these countries to primarily improve their level of democracy and thus, for their economic and social development.

The applied researches referred to in this report reveal that the ease of doing business corresponds to a higher growth rate, a fairer income distribution and lower poverty.Investments are the unique means for economic growth and development.A well-defined legal and institutional framework removes the problem of uncertainty and instability which is one of the most significant determining factors of the investment decisions and paves the way for local and international investments.As World Bank Chief Economist David Romer underlines, simple, equalitarian and well practicable rules have directly positive economic outputs.The reason for this is that such a legal and institutional structure gives equal chance for all in the production factors and goods and service markets and especially leads up to entrepreneurship.Simple rules reduce the period and cost of starting a business above all. The existence of a well-defined and guaranteed right of property paves the way for innovation and technological development. Similarly, a structure where the agreements are guaranteed clears the way for the economic activities including the long-term decisions.The existence of an advanced financial system is one of the prerequisites for the development of the market economies. The reason for this is that such a structure provides the effective transferring of savings to investments. This financial system also includes the transferring channels of financial, money and income policies of the governments to the real sector.Taxes, on their part, are the fundamental means for the financing of the governments to create the sub-structure required by the economic activities of the private sector. An efficient, fair and productive taxation system has an important function such as developing the ease of doing business and encouraging national and international investments. Arrangement of flexible and efficient labor force markets also constitutes one of the fundamental features of modern economies and majorly contributes to the ease of doing business. Of course, democracy level is a prerequisite for the establishment of a legal and institutional structure necessary forthe productive functioning of the market economies. Within this framework, the MENA countries need to introduce the reforms which will develop the legal and institutional structure of the market economy and the ease of doing business, which is required for these countries to primarily improve their level of democracy and thus, for their economic and social development.