New Zealand, the United States and Singapore are the top-3 countries that have adopted the most investor-friendly regulations. Although these are among the most developed economies in the world, countries do not need to be part of the list of the most advanced nations to adopt an environment that makes the conduct of business easy. The best example is that Botswana is among the top 20 for the best business environment.
In the Maghreb, the three main countries have various environments, with Tunisia outranking its neighbors on most factors. The process of starting a business in the Maghreb varies from country to country. According to a World Bank report, Morocco has the most simplified and streamlined process in the region and Algeria is the most rigid of the thee Maghreb countries. Libya was no included in the report.
In Algeria, entrepreneurs can expect to go through 14 steps to launch a business over 26 days on average, at a cost equal to 27.3% of gross national income (GNI) per capita. They must deposit at least 65.5% of GNI per capita in a bank to obtain a business registration number. In Tunisia, business creation requires 9 steps to launch en entity over 14 days on average. The cost of business creation is the equivalent of 11.0% of GNI per capita. Newly formed companies must deposit at least 327.3% of GNI per capita in a bank to obtain a business registration number. In Morocco, the process is much more streamlined with only 5 steps. A business is generally created in 11 days at a cost equal to 12.3% of GNI per capita. Entrepreneurs must deposit at least 718.6% of GNI per capita in a bank to obtain a business registration number.
In relative terms, Maghreb countries are generally doing fine when it comes to business creation. They certainly fare better than bigger economies like Mexico, which requires 58 days, Egypt with 43 days and even Great Britain with 54 days. The report ranks Morocco among the top-5 countries that pushed for major reforms in 2003 in terms of streamlining procedures. The other countries are France, Turkey, Slovakia and Ethiopia. As a result, business creation in Morocco grew substantially in 2003, edging up by 21%.
In measuring the workers hiring and firing environment, the analysts who drafted the report established an index measuring between 0 and 100, with higher values representing more rigid regulations. The overall Rigidity of Employment Index is an average of indices covering the availability of part-time and fixed-term contracts, working time requirements, minimum wage laws, and minimum conditions of employment. For Algeria, the overall index is 55, compared with the regional average of 38.7 and OECD average of 34.4. In Morocco, the index shows more rigidity in the employment environment with a country index of 70. Tunisia has the best index, at 54. Firing costs are calculated on the basis of the number of weeks worth of salary in severance, notification and penalties that must be paid to dismiss a worker.
In the area of property registration, Algeria had the best score. The ease with which businesses can secure rights to property is measured below using the number of procedures necessary to transfer a property title from the seller to the buyer, and the time and the costs as a percentage of the property value. In Algeria, it takes 52 days to register property, compared with the regional average of 54 and the OECD average of 34. In Morocco, registration requires 82 days, and in Tunisia it is 54 days. In the area, Maghreb countries need to look at Saudi example, where property registration is finalized in four days.
Access to credit is a critical element in a country's business environment and surprisingly, Morocco is the worst performer when it comes to how well the collateral and bankruptcy laws facilitate lending, despite a fairly well developed banking sector and the existence of reputable private banks. In the area of credit information availability fro a public registry or private bureau, Algeria is the worst performer due to the lack of appropriate information systems. Tunisia, once again, shows the best performance, while tied with Morocco in the area of credit information.
Analysts used a series of data sets to measure credit access. One set of indicators measures the coverage, scope, quality and accessibility of credit information available through public and private registries. A second set measures how well collateral and bankruptcy laws facilitate lending. It ranges from 0-10, with higher scores indicating that those laws are better designed to expand access to credit. Algeria has a score of 3, compared with the regional average of 3.9 and OECD average of 6.3. The Credit Information Index measures the scope, access and quality of credit information available through public registries or private bureaus. The index ranges from 0-6, with higher values indicating that more credit information is available from a public registry or private bureau. Algeria has a score of 0, compared with the regional average of 2.1 and OECD average of 5.0. For Morocco, these scores are 2 and 2, respectively, while Tunisia scored 4 and 2.
In the area of investor protection, Tunisia surpasses Morocco and Algeria. This latter has the weakest investor protection environment. Investor protection is measured by the Disclosure Index, which captures seven ways of enhancing disclosure: information on family; indirect ownership; beneficial ownership; voting agreements between shareholders; audit committees reporting to the reporting to the board of directors; use of external auditors; and public availability of ownership and financial information to current and potential investors. The index varies between 0 and 7, with higher values indicating more disclosure. Algeria has a score of 2, compared with the regional score of 2.6 and the OECD score of 5.6. Morocco has a score of 4 , while Tunisia has event outranked OECD with a score of 6.
In the area of contract enforcement, Three indicators are used to assess the ease or difficulty of enforcing commercial contracts. Thy are the number of procedures counted from the moment the plaintiff files a lawsuit until actual payment, the associated time, and the cost (in court and attorney fees), expressed as a percentage of debt value. In Algeria, the cost of enforcing contracts is 28.7, compared with the regional average of 17.9 and the OECD average of 10.8, versus 17.7 in Morocco and 12.0 in Tunisia.
Finally, when it comes to closing a business in terms of time and cost required to resolve bankruptcies, analysts use the Recovery Rate, which measures the efficiency of foreclosure or bankruptcy procedures, expressed in terms of how many cents on the dollar claimants recover from the insolvent firm. The recovery rate in Algeria is 37.1, compared with the regional average of 28.6 and OECD average of 72.1. In Morocco it is 34.8, and in Tunisia 50.1.
© The North Africa Journal 2004
