Saudi traders monitor the stock market on March 15, 2006 in Riyadh
© Archive AFP photo
Saudi traders monitor the stock market on March 15, 2006 in Riyadh
Last updated: March 17, 2015

How the MENA region lags behind on business transparency – and why it must change

Banner Icon "While the MENA region still has a lengthy way to go, there are examples of informational transparency in business practices available that bode well," writes business analyst Bassam Aoun in this urgent report.

The interaction between government agencies and the business sector is an often-intricate ordeal. On the one hand, you have a regulator setting the rules of the playground and supervising all activities. On the other hand, there is a pivotal cog to growth and employment, constantly attempting to balance ethics and the pursuit of rents. The nature of this interaction, particularly in the Middle East, is crucial in developing the state of the economy. Specifically, the regulations set by the public sector will inherently dictate the fluidity with which businesses can set up shop as well as the ease of their operation. 

In light of this relationship, the World Bank has recently published a working paper by Geginat and Saltane for the Global Indicators Group where it explores the topic of business regulation in the Middle Eastern region and beyond. In specific, the paper takes an in-depth look at the availability of information, particularly the issue of transparency in business regulations.

THE REPORT is quick to note that businesses cannot simply go to another source of information if the government’s transparency is inadequate. In other words, they cannot “vote with their feet,” which highlights the importance of such an issue. Additionally, according to the report, badly implemented business regulations tend to result in adverse effects such as dampened productivity and weaker firm creation. 

The document aims to measure the influence that information on business regulation can have on these effects. It does this by analyzing a dataset comprised of 185 economies’ fee schedules between 2011 and 2012 for business procedures. The data reveals whether or not this information can be captured online without meeting a public official, a primary indicator of the ease with which businesses have access to these resources. 

640px-13-08-06-abu-dhabi-airport-08.jpg

Firstly, the analysis begins by observing the Regulatory Transparency Index (RTI), a measure of the consistency of governments’ efforts at making business regulatory costs transparent. The measure ranges from 0 at the lowest transparency to 1 at the highest transparency. The results revealed that the Middle East and North Africa retains the lowest RTI measure from all scoped regions – a below average 0.46 compared to 0.88 for the OECD countries. Additionally, there is a positive correlation between the RTI and income levels as well as Internet penetration, although there is some noticeable variation within income groups. 

SECONDLY, the report takes a look at government systems and ideologies, measured using the POLITY IV database and the Freedom House Political Rights and Civil Rights indicators. The conclusion from the regression analysis is that governments that are more democratic by nature, or conversely, less autocratic, tend to make information more easily accessible to economic players. Good governance, or the general control of corruptive practices, also displayed a positive correlation with the availability of business information. 

Geginat and Saltane subsequently tackle the question of whether or not better quality of regulation stems from the open availability of such information, and vice versa. This is done by correlating the aforementioned indicators with other measures of business regulation quality, such as the Ease of Doing Business Ranking from the World Bank. The result revealed that greater access to regulatory information is associated with a better ranking in the Ease of Doing Business list. The correlation, therefore, between quality of business regulation and access to business regulation information is positive.

"...greater access to regulatory information is associated with a better ranking in the Ease of Doing Business list"

All of the above measures and results tend to mesh together as complements, according to the report’s authors, suggesting that information transparency is a step-by-step process rather than a single shot solution. The paper concludes by making an important caveat – causality here is inconclusive. In other words, greater access to information does not necessarily lead to better governance, or the other way around. It does, however, show that there is a correlation between the two. 

While the MENA region still has a lengthy way to go, there are examples of informational transparency in business practices available that bode well. The Abu Dhabi Business Center, for example, has a one-stop-shop online portal for a wide array of business requirements, such as licenses, intellectual property matters and fine payments. The Ministry of Economy and Commerce in Qatar has a similar, albeit more lengthy, list of all requirements necessary for businesses to perform a number of transactions and legal maneuvers. The practice extends to Bahrain, where the Ministry of Economy’s website details all required documents and application procedures. Even Lebanon has a page dedicated to providing e-services for businesses that need regulatory information. 

The report does not explore whether or not information is available online – in this day and age, there is hardly any information that cannot be sought via an Internet browser. The issue in question is how effective the current system in place is, the level of transparency it exhibits and what other aspects of the economy it affects. 

The Middle East and North Africa is lagging behind its regional neighbors, as per this study, and only upon recognizing this can constructive strides towards informational transparency be achieved. Not only is the private sector set to benefit, but society as a whole as well, reaping myriad social and economic advantages in the near term.

Bassam Aoun
Bassam Aoun is a Business Editor at Your Middle East. He is currently based in Abu Dhabi and holds a BA in Economics from the American University of Beirut and an MPP (Master of Public Policy) from the University of Chicago. He has written for the Chicago Policy Review and is interested in economic and fiscal policy in the Middle East.
blog comments powered by Disqus