The Arab Spring has been tough on Egypt when it comes to reforming its business environment

Egyptian officials used to boast about Egypt's ranking in the World Bank annual report detailing the ease of business practices across the globe. In fact, the bank classified Egypt as one of the world's top-10 reformers between 2002 and 2009 four times in its "Doing Business Report," praising the nation for simplifying processes involving starting enterprises, accessing credit, enforcing contracts and dealing with construction permits.

Those reforms and more were behind Egypt's climb of 10 spots to 106th out of 183 countries in the 2010 edition versus the year before.But efforts to build on these improvements have faltered in the wake of 2011's popular uprising and caused Egypt to fall to 108th and then 110th position in the 2011 and 2012 reports.

Egypt has gained some ground this year, coming in below Nepal but above Costa Rica to rest at 109 out of 185 nations. However, its 2013 rank has little to do with actual reform, as Egypt's performance is worsening in many of the Doing Business categories. Instead, the standing is a reflection of how other countries fared, according to World Bank officials. On October 22, the World Bank presented the results to select media and government officials in a Washington, D.C. and via video conference at the International Finance Corporation's (IFC) headquarters in Maspero.

Speaking in Washington, Augustos Lopez-Claros, the World Bank Group's director of global indicators and analysis, said the 10-year anniversary of Doing Business' inception showed researchers several key trends in both the developed and developing worlds, which made one thing abundantly clear: "There is substantive empirical work in economics literature that has established countries that make entry into the market more difficult through excessive regulation, red tape and costly and complex procedures [as] countries that are going to have higher levels of corruption and informality [...]. Facilitating business entry into the market has real [positive] economic implications."

 And this is the trap Egypt's new government is looking to avoid at all costs. The report shows that little progress was made to improve standards and decrease red tape across the report's 10 indicators, which include areas like investor protection, paying taxes and closing a business, due mostly to Egypt's embroilment in the Arab Spring and resulting prolonged political instability.

Despite the challenging times, there were some decreases in fees for electricity and construction permitting. However, these slight changes were not enough to boost Egypt's performance by much in the Doing Business ranks.

"We have a need for reform in this region. This is very clear. This is a time when we need the private sector to play its most robust role in terms of creating jobs, investment and generating hard currency through exports and tax revenues.

Those are the roles the private sector could play even more if it had the proper investment climate," says Magdi Amin, manager of investment climate for the Middle East and North Africa for IFC, the World Bank Group's arm that provides financing and consultancy services for the private sector in developing nations.

But it wasn't all bad news. Egypt grabbed one top-10 finish, coming in sixth overall in a new matrix the Doing Business team created last year. The matrix measures a country's reform over the course of several years to pinpoint just how far nations have come to "perfecting" their business regulatory environments, with 100 points indicating a perfect score, while zero showed no movement.

Egypt's dedication to reforms since 2005 boosted Egypt's score by 16.3 percentage points, which was good enough to beat out several developed nations like France and Portugal -- 48th and 42nd, respectively in this list. The first and second place spots in this category went to Georgia and Rwanda for their strides toward regulatory restructuring.

A new path
Nermine Abulata, chief economist for the Ministry of Industry and Foreign Trade, attended the conference and agrees that there is more work to be done to improve Egypt's score, particularly in areas like trading across borders. In the 2010 report, Egypt ranked 29 in this area. That number quickly slipped to 64 in the 2012 issue, and then fell another six spots to 70 this year, proving Egypt was unable to keep up with the pace of other economies to stay competitive.

"There is still room for improvement. For us this is not a positive indicator. We need to put in double or triple the effort of the past," says Abulata. The economist plans to begin by verifying the report's data and examining its methodology to see if there can be improvements made in the way the data are gathered. The next step is to meet with government authorities to get their feedback. Once that has been achieved, Abulata wants to create a task force linking officials and private enterprises to find more ways of improving the import and export of goods across Egypt's borders.

The road ahead won't be easy, particularly when it comes to implementing reforms, which is why the ministry must start working right away. "That's why I was telling my colleagues that we need to start tomorrow to prepare for next [year's report]," she adds.

That kind of attitude could be just what the country needs to regain its top reformer reputation. But it will take more than promises to move up in the rankings. "We're talking about rebuilding confidence in the private sector," says IFC's Amin.

One way of doing this is through public-private partnerships, like the one IFC helped broker between the government, Alexandria University and the Bareeq Hospitals Company in April. The project involving the construction of two hospitals in Alexandria will increase Alexandrians' access to health care services and blood from a new blood bank as well as save the government money through attracting private investment.

Doing Business Rankings -- Egypt

Egypt must also improve its licensing procedures and bankruptcy laws. "First of all, licensing, not only construction permits, but industrial licensing is a big issue for the private sector here since it takes a long time and is complex.

Secondly, [there needs to be] bankruptcy reform. Bankruptcy is a criminal offense here and it causes entrepreneurs to think twice about taking risks with borrowed funds," says Amin.

He adds that authorities have made it easier to open businesses with one-stop-shop models throughout the nation, but it is still difficult for owners to close their enterprises. He also suggests the country look at ways of improving the flow of information and transparency to help investors make better choices and protect themselves.

So far, IFC is confident that officials see the necessity of these kinds of reform. Now it's time to make these changes happen.

"The Doing Business report has always had a pretty good resonance here. What's a little bit different now is that in previous years, Egypt was recognized as a top reformer [...]. This year we're not seeing [reform]. The focus has been on transition. Now it's time to focus on reform and it's a very clear window of opportunity."

© Business Today Egypt 2012