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French Version

Red tape hobbles Lebanese business - World Bank report

The government needs to enact "far-reaching improvements" immediately to remove public-sector obstacles to investment and business growth, said a report released this month by a division of the World Bank.

The study's major recommendations included a "complete overhaul" of the business licensing system, which the report labels "inefficient, over-regulated and time-consuming for both the public and private sector." Once businesses are up and running in Lebanon, the state hinders private-sector growth with the current Labor Code, which "is not adapted to globalization of markets and investments" and the social-security system, which "also calls for urgent reform." The state also hamstrings the movement of goods and services across borders, as foreign trade remains "hampered by corruption" in the customs regime, said the report, which was prepared by the International Finance Corporation (IFC), the private-sector arm of the World Bank.

Economy Minister Sami Haddad, whose ministry worked with the IFC in preparing the report, said he expected the poor evaluation, but he promised to address all the problem areas detailed in the report. During the Civil War, Lebanon lost much of the competitive advantage it enjoyed over its neighbors, Haddad said, and in today's globalized economy the country must strip away administrative barriers to growth to succeed.

"I'm not surprised, but I'm still disappointed" by the report's findings, Haddad told The Daily Star Tuesday. "We have a reputation as having a liberal business environment, [but] we have either stagnated or regressed. This is most unfortunate. We have to do our best to catch up. Whether we like it or not, we're in competition with everybody else."

In addition to the hurdles catalogued in the report, the state significantly drags down private enterprise in Lebanon through the business registration procedure and its judiciary's glacial resolution of conflicts, said Julia Brickell, IFC country manager for Lebanon. Bureaucratic obstacles make the business climate "difficult," she said, but praised the work done since this administration took office.

Any talk of reform must take the ongoing political stalemate into consideration, Haddad said - following all the report's blueprints to liberalize the economy would still not have the desired effect because of the continuing instability.

"If you have the political and security situation we have in Lebanon, you can make the business climate in Lebanon the best in the world and investors will not come," Haddad said. "The political and security situation is not helping."

Despite the difficulties, Haddad and the IFC signed an agreement Tuesday to extend the IFC's technical assistance in simplifying the process of registering a new company. The ministry and the IFC have targeted the procedure as a key bureaucratic impediment to investment, as studies calculate the registration process here to take about two months. In comparison, IFC studies show New Zealand offers the shortest average time to sign up a new firm: two days.

The ministry and the IFC should complete an action plan in April to reform the procedure, although Tuesday's extension will allow the IFC to continue its pro-bono assistance until the end of the year, Haddad said.

"The goal, ideally, is to reduce the procedure to three, four days at most," he added. "At the end of the day it's not just about simplifying our bureaucracy - the ultimate goal is to create as many jobs for Lebanese [as possible]."

Haddad also touted privatization as a way to reduce the state's drag on the economy, saying the electricity and telecom sectors, which could provide significant employment, are today retarding economic growth with their shoddy performance.

Beirut 21-03-2007
The Daily Star

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