Investment in MENA [Archives:2005/843/Viewpoint]

May 19 2005

When discussing the problems encountered in any program, project or even country no doubt it is the financial issue that ranks first place. This fact becomes clearer and more alarming in underdeveloped countries where a large percentage of the population lives below the poverty line, such as in Yemen. In turn, the Yemeni government has taken some measures to improve the economic status of the country through various economic reform strategies and programs, some of which have proved to be a total disaster while others flicker a tinge of hope that things could become better.

Hence, economy is the backbone of any country, and simultaneously; investment is the foundation of any economy. In other words, the way to achieving a better and sustainable economy is very much dependent on the investment environment of that country. Investment environment includes issues of procedures and paper work, facilities and incentives, promotion and information as well as bilateral relations.

If a country focuses on these four aspects in a positive way encouraging foreign and local investments especially with regards to small and medium scale industries, then this is a sure way of rapid economic growth. Investment laws must be designed to attend to issues such as eliminating double taxation, promoting exemptions and provision of quality services. Formal procedures and paper work required before issuing licenses and permits should be reduced to the minimum along with the importance of keeping the procedures as simple as possible.

In a report by the World Bank – MENA region earlier this year, it was mentioned that among nations enacting reforms in the Middle East, Jordan improved the process for starting a new business most, by cutting the number of procedures from 14 to 11 and the number of days from 98 to 36.

Still, Jordan is one of six Middle Eastern countries, together with Morocco, Egypt, Saudi Arabia, Yemen, and Syria, in the list of 10 countries with the highest minimum capital requirement for starting a business. Algeria, Morocco, and Yemen also reduced the number of days necessary to start a business. Saudi Arabia reformed its public credit registry, nearly doubling the number of borrowers with information available at the registry.

Jordan reduced the time it takes to register a new business by nearly nine weeks and is one of the few nations that gives regulators an incentive to maximize the value recovered for creditors when a business must close. Yet the government still requires a new business to have minimum capital equivalent to 11 times the nation's average per capita income. In Saudi Arabia and Yemen, the minimum capital requirement is 15 times average income; in Syria, the requirement is 50 times average income. By comparison, more than 40 nations worldwide have no minimum capital requirement for a startup business.

Yemen among other developing nations is in dire need to encourage investment and yet it is not carrying out any significant improvements in these regards, Michael Klein, World Bank/IFC Vice President for Private Sector Development and IFC Chief Economist in an old report said something that although true, it is incredibly alarming: “Poor countries that desperately need new enterprises and jobs risk falling even further behind rich ones who are simplifying regulation and making their investment climate more business friendly,” I hope this message reaches those people sitting at decision making positions so as to feel the responsibility and act on it.