The Holy Sites metro light railway which opened in Mecca
Saudi Arabia is the best country in the Middle East for doing business according to a new World Bank report. The world’s largest oil producer ranked 22nd globally, ahead of neighbouring UAE, Qatar, Bahrain, Oman and Kuwait. © © Amer Hilabi - AFP
The Holy Sites metro light railway which opened in Mecca
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David Hedengren
Last updated: November 5, 2012

Saudi is best for business, but the Middle East suffers from structural problems

Saudi Arabia is the best country in the Middle East for doing business according to a new World Bank report. The world’s largest oil producer ranked 22nd globally, ahead of neighbouring UAE, Qatar, Bahrain, Oman and Kuwait.

The “Doing Business 2013” report gave Saudi high scores for taxation (3rd in the world), investor protection (19th), access to electricity and property registration (both in 12th place). The kingdom’s scores were weaker when it comes to starting a business (78thplace), resolving insolvency (107th) and enforcing contracts (124th).

Recent editions of the report, which polls the opinions of thousands of lawyers, consultants and government officials, has highlighted substantial efforts by Middle Eastern and North African (MENA) governments to improve business regulation for entrepreneurs. But the reform momentum has slowed since the beginning of the Arab Spring, as regional leaders are facing complex social, political and economic challenges following the uprisings.

Only 11% of the MENA economies implemented at least two regulatory reforms in the past year. One such example is Egypt, the top improver for doing business in MENA since 2005. The country’s progress was concentrated in the years before 2009; in the past four years there are no visible improvements in the areas measured.

The report points out serious structural challenges that can hamper private business activity, including a history of government intervention that stimulates rent seeking rather than entrepreneurship. The region also suffers from a crisis of governance and trust.

“Businesses do not trust officials, and officials do not trust businesses. Business managers in the region rank corruption, anticompetitive practices and regulatory policy uncertainty high on their list of concerns,” the report noted.

At the same time “60% of public officials interviewed across the region perceive the private sector as rent seeking and corrupt.” Another common view is that only connected entrepreneurs are successful, suggesting a dual set of rules with preferential treatment for those close to the ruling elites.

And although economies in the region have made some progress when it comes to reducing the complexity and cost of regulatory processes, weak investor and property rights protections remains a major problem.

“The region still has much room for making the life of local businesses easier through clearer and more transparent rules applied more consistently. Such rules would facilitate…private sector activity…in a region where the need to encourage entrepreneurship is…perhaps more intense than in any other,” the report said.

Despite these challenges, it was noted that the recent political changes in the region provide a unique opportunity for governments to address many of the obstacles to private sector development.

“Creating…more transparent and sensible rules — rules that are better able to respond to the needs of the business community and that provide incentives to narrow the gap between the law as written and the law as practiced — will go a long way toward creating the conditions for more equitable economic growth and a faster pace of job creation.”

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