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Reform first, celebrate later, say experts

CAIRO: Before Egypt starts celebrating its recent ranking as the world’s 10th business reformer, vital steps need to be taken to further facilitate doing business, said critics. “It is very positive that Egypt is once again ranked among the top 10 reformers by a prominent international organization. The fact that Egypt has scored high rankings …


CAIRO: Before Egypt starts celebrating its recent ranking as the world’s 10th business reformer, vital steps need to be taken to further facilitate doing business, said critics.

“It is very positive that Egypt is once again ranked among the top 10 reformers by a prominent international organization. The fact that Egypt has scored high rankings for three consecutive years means that the government is on the right track and, more importantly, that the world is taking note of the progress, said Reham ElDesoki, senior economist at Beltone Financial.

The areas where Egypt progressed the most this year were starting a business, registering property, getting credit, protecting investors and paying taxes which reflect the importance of dealing with bureaucracy and regulatory reform for the government, she noted.

“While the overall progress in highlighted areas might be positive as noted by the [report], we believe that level of improvement is mixed in different sectors, which could hinder growth in the future if the discrepancy in pace and level of reforms continue, she said.

There is significant room for improvement in the areas where Egypt did not progress this year and more importantly reform in different sectors of the economy, ElDesoki said.

“More regulatory, institutional, and civil service reform is also [necessary] to support sectoral reform, capitalize on reforms implemented to date, and sustain high growth going forward, she said. “The need for trading across borders is definitely of utmost importance, considering that a main driver of growth is exports growth, along with investment and private consumption growth.

The World Bank’s “Doing Business 2009 Report – released last Wednesday – found that Egypt reformed its business regulations more than any other country in the Middle East in the year to June and that it was “once again among the top 10 global reformers – the third time in four years.

The Egyptian government made it easier to start a business through measures which included reducing the capital requirement by more than 80 percent and automating tax registration, the report said.

Egypt also changed listing rules on its stock exchange to strengthen protections for minority shareholders, sped customs clearance at the port of Alexandria and simplified procedures for registering property.

Egypt was the world’s top reformer of business regulations last year but was outpaced this year by countries such as Azerbaijan and Belarus. “We are not reforming alone. Other countries are reforming too, said Ziad Bahaa El-Din, chairman of the board of trustees at the General Authority for Investment and Free Zones (GAFI).

He added that competition gets tougher each year, as the report generates worldwide attention and more countries are added to the list.

According to the report, Egypt did not make progress in employing workers, enforcing contracts and closing a business.

“Closing a business is connected with the bankruptcy code that is currently in the making by the Ministry of Justice. Once the code is ratified, Egypt will make a huge leap in the ‘closing a business’ indicator, Bahaa El-Din added.

“Ranking lower than last year [on the world’s top 10 reformers] does not necessarily mean that this country is stagnating with its reforms. But it means that there are other countries outpacing its reform process, said Dahlia Khalifa, co-author of the report.

Still, Egypt managed to jump 11 places in aggregate rankings on the ease of doing business, scoring 114 out of 181 countries, compared with last year’s 125th place.

This year’s report covers 10 indicators of a business cycle as they apply to domestic small and medium-sized enterprises. However, rankings do not reflect a country’s security, macroeconomic stability, currency volatility, corruption and crime rates, investor perceptions, labor skills or quality of infrastructure.

“The report does not [reflect] a comprehensive image of a country’s economic-health or investment climate, Khalifa pointed out.

Despite that, Bahaa El-Din deems the report the most read worldwide and therefore the most important. “It’s the most quoted report by an investor worldwide . It’s an international benchmark for investment even if it [does not measure it].

In regard to boosting investments, some economists believe the report can be called more than effective. “The report can have an excellent and a very positive impact on investment in a country, said Samir Radwan, board member at GAFI.

“Proving my point is that last year [when] Egypt ranked world’s top business reformer, foreign direct investments [FDI] soared to $11.1 billion or 9 percent of GDP. In the three quarters of 2008, FDI is equal to [total of] last year’s $11.1 billion, and the figure could leap to $13 billion or 10 percent of GDP by end of this year, he added.

Topics: FJP

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