What is hindering business in Egypt? Nesma Nowar finds the answers in a report that covers Egypt's two main cities
Although in recent years Egypt has worked on improving its business climate, multiple challenges still stand in the way of doing business in the country.
In its second edition, the "Islah 2 Index" lists the obstacles facing the business community in Egypt. The Islah Reform Index measures the ease of conducting business in Cairo and Alexandria focussing on 11 policy areas that are crucial for conducting business.
The index, launched in its second issue this week, is published by the Alexandria Business Association (ABA) in cooperation with the International Finance Cooperation (IFC), the General Authority for Investment (GAFI) and Alexandria University. The first edition was launched in 2009.
"Islah 2 showed that all obstacles that faced investors before the revolution still persist," said Mohamed Ghatwary, ABA chairman, in a press conference held this week in Cairo.
Indeed, Islah 2 results showed that the negative aspects of several policy areas highlighted in Islah 1 have remained the same or, in some cases, worsened.
In the majority of policy areas, satisfaction levels in Alexandrian firms was lower than in their counterparts in Cairo, highlighting the urgent need for administrative reform and decentralisation across the board.
In terms of starting a business, a tax card takes five days to be issued in Cairo while it takes 12 days in Alexandria. Meanwhile, Cairo lagged behind regarding the time needed to resister a business: it takes 63 days in the capital compared to 29 days in Alexandria.
In general, firms surveyed in both cities reported neutral satisfaction levels in the area of starting businesses. However, the level of satisfaction in Cairo was higher than Alexandria due to higher costs associated with tax cards and registration of a new company in Alexandria. The cost of registering a business in Alexandria is 48 per cent higher than Cairo.
Regarding licensing, Islah 2 revealed that levels of satisfaction in this area dropped compared to Islah 1. Companies reported that experiences dealing with most governmental bodies remained unsatisfactory. Comparing between Cairo and Alexandria, the index shows that there is discrepancy between the two governorates in terms of issuing permits inside districts, obtaining building permits for new urban areas, and issuing industrial operating licences and related activities.
Cairo reported higher satisfactory levels as a result of easier procedures, faster approvals and fewer costs associated with the majority of agencies and procedures compared to those in Alexandria. The discrepancy between the two cities emphasises the importance of administrative reform and decentralisation.
Decentralisation is also needed in the banking sector. In most cases, the level of satisfaction in Cairo was higher than Alexandria in terms of product variety, efficiency of banking services and obtaining letters of guarantee and credit. "This emphasises increased centralisation of credit decisions in banks," the index stated. "This issue requires fast and urgent action by the Central Bank of Egypt and other banks to facilitate the process of obtaining credit for small and medium-sized enterprises as well as firms located outside Cairo."
Employing workers is an area that experienced positive development regarding legal and institutional constraints, such as health and safety, working time, firing procedures and social insurance. Nonetheless, the scarcity of skilled labour remains a major problem. Though both governorates scored neutral satisfaction levels towards employing workers, Cairo had a better share of labour quality, training and availability.
Protecting investors is vital for a healthy investment climate. Results show that several positive developments have taken place in this regard. Laws and regulations on corporate disclosure, protection of minority shareholders and the ease of protecting copyright have all improved. However, businesses in both cities were highly dissatisfied with the enforceability of court decisions, accountability of public officials and coordination between government entities.
"Those areas emphasise the need for administrative reform to overcome unnecessary delays and costs, which negatively affect the business environment," the report said.
Similarly, reforms should be undertaken in the area of enforcing contracts as the general level of satisfaction on this issue has worsened compared to Islah 1. Results of Islah 2 revealed that respondents reported low satisfaction levels regarding settlement through court and government committees.
Exiting a business was one of the few areas where respondents showed higher levels of satisfaction, shifting from "unsatisfactory" to "neutral".
Islah 2 results identified bureaucracy, centralisation and access to credit as the three main obstacles standing in the way of doing business in Egypt.
As a result, the ABA made recommendations for the implementation of several measures to overcome these problems. The ABA recommendations called for more transparency when it comes to dealing with government entities, better coordination between government agencies and raising the wages of civil servants.
Lower levels of performance in Alexandria compared to Cairo require action on decentralisation, the ABA recommends. The ABA also suggests adopting a new economic development approach in which all stakeholders would be engaged in the process of local development. It also called for empowering the business and investment community to act as a government watchdog.
The ABA recommended a similar decentralisation process in terms of dealing with banks, so as to ensure firms outside Cairo can have easier access to credit. Ghatwary highlighted the importance of addressing the problems identified in Islah 2: "Problems should be solved through an effective conversation between the private sector and the government," he said.
The Islah Reform Index results complement the Doing Business Reports produced by the World Bank through identifying the main areas that need reforming. Nonetheless, the results of Islah 1 and 2 were different from the Doing Business Report findings. The Doing Business Report 2011 showed general improvements in all policy areas with the exception of exiting business and employing workers.
The Islah Reform Index 2 showed positive development in institutional arrangements. However, it did not show significantly better results in terms of the quality and availability of workers and exiting businesses.
Egypt's rank in the 2011 Business Report was 94 out of 183 countries compared to 106 out of 183 in 2010 and 114 out of 181 countries in 2009.
Islah Reform Index 2 polled 200 companies in Cairo and Alexandria. Companies differed according to size (micro, small, medium and large) and activity (agriculture, manufacturing, construction and services).