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French Version

Is entrepreneurship in the Middle East expanding? Significant hurdles stand in way of reform

The United States spends hundreds of millions of dollars annually for economic aid to developing countries. A good deal of it is devoted to encouraging entrepreneurs to start new businesses - to stimulate innovation, create jobs, and lessen the deep and growing chasm between rich and poor.

A healthy number of these dollars are spent in the Middle East - a part of the world the U.S. is trying to win over to its side.

So how is America doing?

Well, according to a new report from the World Bank and the International Finance Corporation, if you're thinking of starting a new business, you'd best be advised to go elsewhere.

The reason is that starting a new business in most of the Middle East means jumping through a lot more bureaucratic hoops, wasting a lot more time, being a lot more persistent, and spending a lot more money.

The report benchmarks regulatory performance and reforms in 145 nations. It finds that administrative procedures in poor nations still make it twice as difficult as rich nations for entrepreneurs to start, operate, or close a business, and that businesses in poor nations have less than half the property rights protections available to businesses in rich countries. In more than a dozen developing countries, the report finds that registering a new business takes more than 100 days.

The implications for development are stark. "Poor countries that desperately need new enterprises and jobs risk falling even further behind rich ones who are simplifying regulation and making their investment climates more business friendly," said Michael Klein, World Bank/IFC Vice President for Private Sector Development and IFC Chief Economist.

Yet the study finds the costs of undertaking regulatory and procedural reforms modest in relation to investment lost through bureaucratic red tape. It singles out Slovakia, Colombia, Belgium, Finland, India, Lithuania, Norway, Poland, Portugal, and Spain as the top reformers this year.

These countries have done things like creating electronic one-stop shops for new businesses, shrinking regulatory delays by weeks, improving credit registries, and increasing the flexibility of labor laws.

The study finds that "such reforms, while often simple, can help create job opportunities for women and young people, encourage businesses to move into the formal economy, and promote economic growth."

Yet, according to the study, "overall, rich countries undertook three times as many investment climate reforms as poor countries last year."

Donors like the World Bank, the U.S. Agency for International Development, and the European Union have been struggling and spending millions for years to persuade developing countries to streamline their investment regulations and procedures. Similarly, they have fought a long and uphill battle to make credit more available to would-be entrepreneurs.

Yet banking systems in many developing countries continue to practice a kind of crony capitalism, lending to the elites they know - and who least need capital.

These kinds of banking practices, coupled with regulatory and procedural obstacles, act as a heavy brake on enterprise and innovation. They virtually insure that the chasm between rich and poor will continue to grow larger.

William Fisher has managed economic development programs in the Middle East for the U.S. State Department and the U.S. Agency for International Development, and served in the international affairs area in the Kennedy administration.

Beirut,09 21 2004
William Fisher
The Daily Star
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