Constrains to Business growth within the Business environment [Archives:2008/1133/Business & Economy]

By: AbdulKarim Hassan
Yemen is one of the world's least developed countries suffering from profound obstacles that hinder the economy's growth, these obstacles include widespread corruption, an inefficient government, an impoverished population, and a legal framework that fails to protect investors rights. The Realities of Yemen's business environment are grim, especially since any reform initiatives die at their infancy, The Yemeni businesses did not have a chance to thrive without having to indulge in corruption, bare with the government inefficiency, cater to a small market, and suffer from significant risks due to the non-enforcement of law. In this report, we summarize the Yemeni business environment as experienced by the privet sector in Yemen.

Widespread corruption

Although Yemen is a haven of economic opportunities, considering that many subsectors of the economy that may prove lucrative for business, the assets in terms of natural resources such as marine wealth, tourism development opportunities, and, most notably, the human resources, Yemen suffers from widespread corruption that makes it next to impossible to play a role in the economy without having to be a part of corruption. From licensing, to sales, and from taxation to service delivery. A considerable percentage of business activity takes place through facilitators; employees in privet organizations who receive perks to guarantee bilateral business between two businesses. The culture of corruption has resulted in a black economy phenomenon, where most of the income is the direct result of corruption as the largest percentage of income is un accounted for.

In privet sector dealings with the government, it is evident that the privet sector has played a major role in spreading corruption, through corrupting government officials, introducing bribes, commissions, and gifts to officials in order to facilitate the business transaction.

A new entrant to the business environment will be faced by a pre-existing network of facilitators working within the privet sector and in relevant government agencies, who play a major role in diverting business towards preselected organizations, therefore making it hard to compete.

Government inefficiency

The government of Yemen provides integral support to the economy and the business sector on more than one level, through issuing the license to operate, as well as regulating business transactions such as retailing, import and export, customs, exemptions, and more importantly the role the government plays as a buyer in the domestic market. Dealings involving the government are always troublesome to business, examples include the days it takes to establish a business, the hustle in importing goods, among other issues.

The government's inefficiency in catering to business needs are most evident in public services, most notably the existence of an efficient road transport network, communication channels, internet services, and more importantly power. The government's lagging in delivering these basic services have an impact on the growth and development of the privet sector.

Poverty

The existence of a large population might be meaningless to business growth if discretionary income of this population is very small and shrinking – as in the case of Yemen, the widespread poverty throughout rural and urban Yemen forces consumers to change their consumption patterns and become more price sensitive, and satisfy only their basic needs, which means that their shopping lists become smaller and less economy activity is expected on their part. Decreased consumption makes business environment less attractive to business.

Furthermore, the growing gap in incomes as experienced in Yemen might create a niche market for several businesses, which indicates that growth for several companies might by far exceed that of others, which over the medium and long term will evidently result in the close down of many companies due to their non-competitiveness and inability to maintain their staff as opposed to other companies.

Enforcement of law

Lastly, the importance of rule of law and enforcement of policies, rules, and regulations might help in leveling the playing field for business, but more importantly, it will help secure the investments of any business in the event of any dispute with other businesses and possibly the government. Additionally, one of the relevant constrains is that the commercial laws are not well drafted, understood, or implemented by the legal system, which results in a troublesome issue for the privet sector.

In conclusion, the business environment in Yemen suffers from several constrains that limit the growth of the privet sector, in this article we brushed on a few subjects, while there are many more issues being faced by businesses every day, however, those four issues top the list of these constrains.
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