Strengthening Private Sector Resilience under Conflict:
Lessons Learned and the Way Forward
11-12 November 2008
The Need for Good Governance
Reform
Jad Chaaban
Lebanese Economic Association
11-11-2008
J. Chaaban
Main messages
• Impediments to smooth business operations are pervasive in
the Arab countries
• This talk will focus on Governance as related to corruption:
Bribes to “get things done” are a widespread phenomenon
• Bribing can be the result of a self-enforcing mechanism, where
the Government has little room to intervene
– Corruption as “greasing the wheel”
• Public sector wages and corporate taxes play an important role
in limiting bribery
• Institutional reform should be implemented to increase the
efficiency of the public sector and strengthen private sector
resilience
11-11-2008
J. Chaaban
Reform in business regulations is good for job creation
Following reforms to
improve business
registration:
- Business registration
went up by 18.8% from
1998 to 2004 in
Pakistan;
- Business entry
increased by 28% in
Vietnam;
Source: World Bank Investment Climate Assessment, 2006
- Georgia reduced the minimum capital required to start a new
business from 2,000 lari to 200 ($85). Business registrations
rose
by 20% between 2005 and 2006.
11-11-2008
J. Chaaban
Growth and improved economic performance reduce
the risk of civil war
Risk of civil war (%)
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
Typical low-income
country
Country with additional
2% growth, short term
effect
Source: Collier and Hoeffler, 2002.
11-11-2008
J. Chaaban
Country with additional
2% growth, sustained for
10 years
• Corruption is everywhere:
–
–
–
–
–
–
–
'hongbao' in China
'baksheesh' in Arab countries
'matabiche' in central Africa
'propina' in Latin America,
'pots de vin' in France
'mazzetta' in Italy
or just plain bribery.
• On average, 35% of firms in developing countries pay bribes to
get things done
• As high as 50% in Lebanon and 75% in Algeria
• Business regulations impose a high burden on companies, and
this exacerbates the negative impact of conflict
11-11-2008
J. Chaaban
Doing business legislation in Iraq, Lebanon and Palestine is highly
inefficient with regards to investment under uncertainty
Iraq
Lebanon
Palestine
Middle
East &
North
Africa
141
85
117
..
..
Procedures (number)
51
37
44
42.5
31.3
Time (days)
520
721
700
659.3
443.3
Cost (% of debt)
32.5
30.8
21.2
23.7
17.7
Time (years)
no practice
4
no practice
3.7
1.3
Cost (% of estate)
no practice
22
no practice
13.9
7.5
0
19.1
0
25.8
74.1
Ease of Doing Business Rank
Enforcing
Contracts
Closing a
Business
Recovery rate (cents
on the dollar)
Source: World Bank Doing Business Database
11-11-2008
J. Chaaban
OECD
Days of Delay and Percent of Firms Saying Payment
Required for Services, Approvals - Lebanon
140
Delays in obtaining
the following
services ( Days)
120
100
Percent of
Respondents
saying gift/payment
required
80
60
40
20
0
electrical
construction connection
11-11-2008 permit
Source: World Bank Investment Climate Assessment, 2006
operating
license
import
license
J. Chaaban
water
connection
mainline
telephone
connection
Number of procedures
Delay in
days
Cost
(%income)
Minimum
capital
required
(%income)
Egypt
10
22
105
740
-0.4
Iraq
11
77
37
32
-1.3
Jordan
11
18
86
1,012
0.3
Kuwait
13
35
2
134
0.8
Lebanon
6
46
123
69
-0.4
Oman
9
34
5
97
0.7
Saudi Arabia
13
64
69
1,237
0.2
Sudan
10
39
68
0
-1.4
Syria
12
43
35
5,112
-0.6
Tunisia
10
11
10
30
0.1
Palestine
12
106
244
1,410
-1.1
United Arab Emirates
12
63
44
417
1.1
Yemen
12
63
240
2,703
-0.6
Arab mean
11
48
82
999
-0.2
World mean
10
47
69
194
-0.1
OECD
7
20
7
41
1.9
Canada
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2
3
J. Chaaban
0.6
0
1.9
Countries
Source: World Bank Doing Business and Governance databases, 2005
Corruption
index
11-11-2008
J. Chaaban
• It seems that firms prefer to:
– Evade taxes: thus low revenues
to finance public sector reforms
– Pay bribes: poor entrepreneurs
who cannot afford paying bribes
are excluded
Sales amount reported
by a typical firm for
tax purposes (%)
Egypt
Lebanon
Oman
Syria
Yemen
• Parallel ‘market’ for business registration transactions
• Solutions:
Streamlining of procedures
Incentive pay for public servants
Higher income taxes on firms: more accountability
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J. Chaaban
83
50
71
51
45
11-11-2008
J. Chaaban
Recommendations
Establishment or
incorporation
Establishment of a
business should be
inexpensive and the
process kept at a
minimum.
Minimum capital
requirements should be at
a minimum
Ongoing operations
Liquidation/
exit
Compliance should be
straightforward and
inexpensive.
Liquidation cost at a minimum.
Voluntary liquidation should
be a speedy matter.
Labor law should not
discourage hiring of foreign
personnel
Provide financial instruments
to help firms in times of crisis
Customs formalities
inexpensive and speedy
Thank you
[email protected]
11-10-2008
J. Chaaban