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MENA start-ups deterred by red tape, costs

World Bank report says Lebanon fares among the worst

Lengthy procedures, time consuming bureaucracy and high cost are among the numerous problems facing individuals and companies seeking to start a business in the Middle East and North Africa, according to a report issued by the World Bank on doing business in 2006.

The report said it costs 110.6 percent of income to start a business in Lebanon in terms of procedures and regulations, the costliest rate after Yemen, the West Bank and Gaza. As a comparison, the best ratio in the region was recorded by Kuwait with 2.2 percent of income.

Moreover, it takes 68.5 percent of one's income as minimum capital to start a business in Lebanon, compared to virtually nothing in Israel. As for Syria, one needs 5111.9 percent of income as minimum capital, which definitely means that only the Syrian state can start up businesses.

"The greatest issue facing potential investors in Lebanon is the lengthy rules and regulations imposed by the time-consuming bureaucracy" said the president of ARAM International Investments Ali Ghandour.

The World Bank report said that Lebanon fares among the worst when it comes to starting a business.

It takes 275 days for anyone to obtain a license in the industrial sector to build a warehouse in Lebanon, after Syria (134 days) and Jordan (122 days), although the cost of obtaining licenses in Lebanon per se are less than the average regional ratio: 214.6 percent of income per capita in Lebanon and 469.7 percent as a regional average.

U.A.E. is the least costly place in the world, with a ratio as low as 2.1 percent of income per capita.

Lebanon, Kuwait and Jordan, for example, adopt strenuous procedures to register properties in government departments.

The United Arab Emirates has the lowest number of procedure to register property with an index of 3.

Meanwhile it costs a fair 5.9 percent of property value to register property in Lebanon compared to 6.7 percent regionally and a large 30.4 percent in Syria.

The report also tracks the efficiency of contract enforcement in terms of cost and time. It takes more than two years to enforce a contract in Lebanon (721 days), the longest time for the entire Middle East (average 432) after Syria (672 days), and a record of 27 days for Tunisia, the shortest time registered globally.

It also costs 26.7 percent of debt value to enforce a contract in Lebanon, the costliest country after Algeria (28.7 percent) and Syria (34.3 percent).

"Indeed, a business man is usually reluctant to open a business in Lebanon because he knows that in order to deal with legal issues he needs to wait for two years if not more" explained Ghandour.

The cost of running for bankruptcy is of 22 percent of the value of estate in Lebanon relative to a regional 13.4 percent. More importantly, the recovery rate of insolvent company is $0.18 on a dollar, which is much lower than $0.28 on a dollar for Syria and another record of $0.52 for Tunisia.

As for future prospects, Lebanon has initiated not one single reform in order to begin ameliorating its situation, said the World Bank report, compared to an all-high index of 4 for Egypt.

This index is measured by the number of initiatives taken by a given country to improve one of its indicators.

"This is simply because we are just about to start real reforms" said Ghandour who is pretty much optimistic about how the Lebanese government may handle much discussed reforms. "This time reforms will definitely be implemented for the simple reason that people are afraid. Anyone can now just go to jail if he tries to exploit any position of influence."

Beirut 12-09-2005
Bechir Saade
The Daily Star



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