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Friday, 15 December 2017

Egypt loses ground in 2018 Doing Business Report

Egypt's rank in this year's World Bank Doing Business Report is frustrating, but isn’t the best gauge of the true state of investment in the country

Ziad Bahaa-Eldin , Wednesday 8 Nov 2017
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I imagine many officials and staff at the General Authority for Investment (GAFI) and the Ministry of Investment —some of them old colleagues of mine from my tenure as GAFI chair from 2004 to 2007 — felt a pang of frustration when it was announced Tuesday that Egypt had fallen in the rankings, from 122nd to 128th, in the World Bank’s Doing Business Report 2018.
 
The annual report compares business regulations and operations in 190 countries using 10 indicators, each including a set of sub-indices. Egypt, unfortunately, saw no improvement last year save in one field — protection for corporate minority shareholders — while it declined or remained the same in all other areas. The biggest drop was in the indicator that measures the ease of starting a business.
 
But holding the Ministry of Investment and GAFI solely responsible for this less than stellar result, as the media has largely done, is wrong. The report looks at the efficiency, ease, and cost of dealing with all government bodies involved in investment, so they all bear some responsibility. The brunt of the blame also goes to the lack of coordination and cooperation between them to achieve a better result.
 
In any case, a statement from the Ministry of Investment clarified that Egypt’s poor showing this year was based on data only through last May, so did not take into account subsequent developments, most importantly the new investment law and the law on industrial licensing.
 
Moreover, the report methodology relies only on the number of administrative steps needed to complete every phase of a business operation, as well as associated costs and required documentation. This makes the index quantifiable and thus easy to compare across countries, but it doesn’t necessarily capture the quality or weakness of the investment climate. For example, a state might improve its ranking by expediting procedures to establish or liquidate a business or register its properties, but the overall climate for investors could be poor due to inflation, corruption, or lack of security. These factors are not considered in the World Bank report.
 
Even so, countries around the world closely follow the report findings and do their best to improve their ranking — not because it gives a wholly accurate picture of the investment climate, but because since its inception in 2004, the report has gained broad currency in financial circles. It’s the source consulted by analysts and observers in assessing the state of investment and making cross-country comparisons. Ignoring the report, therefore, has serious consequences.
 
In the past, Egypt made efforts to improve its ranking, as was the case from 2004 to 2008. In that period, Egypt climbed dozens of spots in the rankings, earning recognition as the best performer in reforming the business climate in 2007, before sinking to its current spot. We knew at the time that our rank in the report wasn’t the best marker of the real investment climate, but improvement was necessary to send a clear message to the international community that the country took legal, regulatory, and institutional reforms in investment seriously. We knew that progress was possible if all state agencies cooperated.
 
Egypt’s ranking is important, if not for objective reasons then at least for the adverse impact it can have on investment in the country. Concern with the ranking can also help mobilise energy and spur cooperation and understanding between the various state agencies broadly involved in investment.
 
More important is that such ranking does not become the sole standard by which to judge the success of investment policy. That is a wholly different issue that requires listening to investors, engaging with their problems, and assessing the needs of the smallest to the biggest of them. We should also promote cooperation and show more appreciation for the role played by investor associations, particularly in the provinces.
 
This year’s score is doubtlessly frustrating, but ultimately it isn’t the best gauge of the true state of investment in Egypt. What’s important is drawing useful lessons from it.
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