Egypt rose one place to rank 112 out of 189 economies surveyed for the World Bank’s annual Doing Business 2015 report, which measures the ease or difficulty with which entrepreneurs can launch a small or medium business in accordance with local regulations.
In the 2014 edition of the report, Egypt was ranked 128, but this year saw a major overhaul to the methodology and measurements used. Based on the new ranking system, Egypt would have ranked 113 last year.
The report shows that Egypt improved in some categories such as protecting minority investors, for which it now ranks 135 compared to 153 last year, while falling behind in others, such as ease of starting a business, for which Egypt dropped to 73 from a ranking of 67 in 2014.
Egypt also dropped to 149 in paying taxes, which measures the time and procedures required to comply with tax law. Under the new measuring system, Egypt’s score last year would have been 141. Likewise, Egypt fell to 126 for resolving insolvency, compared to 123 in the 2014 report. The country dropped from 102 to 106 for ease of getting electricity, and from 67 to 71 for getting credit. Meanwhile, Egypt maintained its rank for registering property and enforcing contracts, at 84 and 152, respectively.
Officials present at a briefing on the report this Tuesday appeared displeased with the results of the new report and the changes in methodology, despite Egypt’s overall higher score this year.
One contentious area was Egypt’s six-step decline in rankings for ease of starting a business. “We have made many changes in GAFI to reduce fees and time required for starting a business, but these are not reflected in the report this year,” Amr Aboel Fetouh, an economic analyst for GAFI, Egypt’s General Authority for Free Zones and Investment, told Mada Masr on the sidelines of the briefing.
According to report co-author Joanna Nasr, the 2015 report takes into account laws made between June 2013 to June 2014. “We also take into consideration the enforcement of those laws, and the time they take for enforcement,” she said via video link from Washington, DC.
Part of the problem stems from the fact that country rankings are relative. “You have to remember that the ranking of starting business is a relative ranking. It depends also on what is happening in other economies. Egypt will be losing position not due to a change, but because other countries introduced reforms,” explained Nasr.
If other countries show rapid improvement, Egypt can lose ground while it stands still or even slowly introduces more business friendly legislation. Both the 2014 and 2015 reports show that completing the paperwork to start a business takes seven procedures and eight days.
In an attempt to remedy this shortcoming, the report introduced a second metric, called Distance to Frontier, which gives each country a score based on the gap between a given country and the best performers.
For example, in the ease of doing a business category, Egypt fell six places when compared to other countries, but it showed a small improvement when measured by Distance to Frontier, rising to 88.14 percent in 2015 compared to 88.09 percent in 2014.
Egypt saw a drop in rankings despite a small improvement in the Distance to Frontier measurement in several categories.
When it comes to dealing with construction permits, Egypt fell one place to rank 142, despite its DTF score rising from 61.71 percent to 62.06 percent. This dismal score was driven by burdensome laws that require 20 procedures and 179 days to acquire a construction permit, figures which have not moved since last year. By contrast, a business in Hong Kong only needs five procedures to get a permit, and the process takes just 26 days in Singapore. The cost of a permit, however, fell slightly in Egypt, dropping to 1.9 percent of the buildings value in 2015, compared to 2.2 percent in 2014.
However, Aboel Fetouh of GAFI argued that his organization introduced additional reforms not mentioned in the report, including a March regulation that lowered fees for construction certificates, that should have made a greater difference in rankings. Although the change has not yet been uniformly applied, he believes that about 80 percent of banks have implemented the changes.
Another controversial indicator was trade across borders. Based on the new methodology, Egypt’s rank improved to 99 in 2015 from 101 in 2014, but officials took issue with how the World Bank calculates the number of documents required to pass customs. Samir al-Gammal, advisor to the Minister of Trade and Industry, told Mada Masr the report counts original and photocopied insurance certificates as two separate documents.
Gammal was also unhappy with the change in methodology. Under the old system, Egypt ranked 64 in trading across borders in the 2012 report. “We had lots of inputs in methodology; nothing of that has changed in last 3 years,” he said. “The number of documents is the same, the time it takes more or less the same.”
When asked whether he was concerned that Egypt’s declining score in key metrics could hurt the economy, Gammal responded: “You tell me. Why are they doing this report? For foreign investors to look at and decide whether to come in.”