Cairo makes doing business easier

CAIRO // The Egyptian government has implemented some of the world's most consistently enthusiastic business regulatory reform over the past several years, according to a global study made public by the World Bank last month. The bank's Doing Business 2010 report, which evaluates and compares the ease of doing business in 183 countries worldwide, placed Egypt in its top 10 list of business reformers for the fourth year in a row, despite ranking it at 106 among the 183 economies it studied. The UAE placed 73rd.

Egypt's ruling party has in the past cited the Doing Business report as evidence of its commitment to restraining its own heavy-handed bureaucracy, which experts say has hampered entrepreneurship and private enterprise since centrally planned economic policies were implemented in the 1950s and 1960s. That Egypt's economy has seen unprecedented growth over the past four years is further proof, government supporters say, that Egypt's ambitious reform agenda is working.

But economists and political theorists are divided as to whether such reforms benefit the majority of Egypt's people, while others wonder if the four years of positive survey results paint an accurate picture of Egypt's business landscape. "It all boils down to what's meant by reform," said Gouda Abdel Khalek, a professor of finance at Cairo University and a member of the leftist Tagammu Party. "In the eyes of the World Bank, reform means something quite different from what reform means in the eyes of the vast majority of people in Egypt, for example. I'm not talking about economists or politicians, but the layman on the street."

The study's authors specifically commended Egypt for making it "easier to deal with construction permits by - eliminating most pre-approvals". The report also praised new specialised commercial courts, which have improved the state's power to enforce contracts, as well as expanded access to credit information and the removal of minimum capital requirements for new companies. Prof Khalek pointed to the bank's evaluation of construction permits and contract enforcement as evidence of the report's big-business bias. Even as streamlined bureaucracy has simplified securing construction permits for large, well-established businesses, that process remains difficult and time-consuming for poor Egyptians, particularly in rural areas, he said.

As for contracts, the Egyptian government is often "the first to breach contract when it comes to their advantage", Prof Khalek said. "The trouble is that once the World Bank [says] that, the Egyptian government turns and says, 'Look, we're on the top of the list of world reformers'. That puts the people who are in public debate in a corner because the government can have the prestige of the World Bank on its side in the eyes of people who don't know any better."

The authors of the report, however, were careful to state the limitations of their analysis. While Doing Business is one of the world's only "fact-based measurements of business regulation", said Dahlia Khalifa, a World Bank senior economist, the report does not consider such important factors as macroeconomic policy, government transparency, protection against corruption or the strength of regulatory institutions.

Instead, it relies on a set of standard surveys of about 8,000 business professionals that compare, for example, the time it takes to register a new business across nearly 200 economies. Such reforms should not be controversial, said Ahmed Galal, managing director of the Cairo-based Economic Research Forum, who said that some critics of Doing Business tend to harbour an ideological opposition to the World Bank's perceived wider agenda, which many economists have associated with the "Washington Consensus" policies of fiscal austerity, subsidy reduction and free trade.

But unlike reducing barriers to trade or privatising public sector companies, freeing the private sector from red tape benefits all sectors of the economy simply by improving efficiency, Mr Galal said. "These indicators are referring to measures that reduce transaction costs," he said. "Transaction costs are a waste of resources in any society. Poor or rich, Washington or Cairo - these are legitimate improvements from the point of view of saving resources that would have been wasted."

But for the more than half of Egyptians who are employed in the country's vast informal sector, substantial hurdles remain to securing capital, starting a business and enforcing contracts, experts said. The informal sector is also a place of refuge for small businesses - which constitute about two-thirds of Egyptian companies - to avoid redundant and invasive bureaucratic regulations. "Inefficient government bureaucracy" was the "most problematic factor" to doing business in Egypt, according to a global survey of business executives published last month by the World Economic Forum.

As such, Ms Khalifa said, Doing Business can encourage governments to set policies that are more welcoming for small firms. "If you make regulations transparent, if you implement them efficiently and you allow them to be accessible to all those who need them, then you encourage more and more people to operate in the formal space," Ms Khalifa said. "The benefit of that obviously is that you have more access to finance, your workers then have the protection of the law, and your tax base is widened. In other words, the impact on the economy is much greater."

Despite its focus on regulatory policies that affect high-capital companies, the report still reflects genuine improvement, said Magda Shahin, the director of the trade-related assistance centre at the American Chamber of Commerce in Cairo. But the report's perspective speaks to only one side of the story, she said. Egyptian regulators would now do well to lift the bureaucratic burden on Egypt's largest commercial sector: the grey market.

"I can vouch for this [report] and I can vouch for this from the business people themselves," Ms Shahin said. "Yes, the government is responsive to the business community's demands and requests in a sense. However, what I am dealing with here is only the big businesses and this is certainly different for the SMEs, which are handicapped." mbradley@thenational.ae