'Business start-ups hurt by bureaucratic roadblocks'

Delays cost economy more than $100m. annually.

By AVI KRAWITZ
December 26, 2005 07:07
2 minute read.

 
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Bureaucratic difficulties involved in opening a business cost the Israeli economy over $100 million in lost productivity every year, a study published by Koret Israel Economic Development Funds and the Israel Small and Medium Enterprise Authority, claimed Sunday. Indeed, the research cited a World Bank report that placed Israel 83rd, below the likes of Pakistan, Syria and the West Bank and Gaza Strip, for the ease in which its citizens can open a business. "The licensing procedure in Israel is tedious and harmful for businesses," Aharon Cohen Mohliver, a Koret fellow who co-authored the study with David Dvir, said in an interview with The Jerusalem Post. "The law demands one get a license from different departments whose requirements may be contradictory." Each local authority, Mohliver explained, and each department, be it the fire department, police, health, etc., has its own requirements and interprets the law differently, which sometimes makes it impossible for a business to get a license. As a result, he said, it takes on average 219 days for an Israeli business to obtain a license, compared to 147 days for the average OECD (Organization for Economic Cooperation and Development) country, according to the World Bank. "The problem is that we need one central body to organize them," Mohliver said. In their research, Mohliver and Dvir recommended that the Licensing Authority be moved from the Ministry of the Interior to the Ministry of Industry, Trade and Labor, which would be responsible for streamlining the licensing law, and overseeing all requests from local authorities trying to add new prerequisites for licenses. They also proposed the creation of an Internet site that would enable businesses to more easily obtain licenses and begin operation. Currently, Israeli businesses have to go through three times the number of procedures as those needed in New Zealand, which topped the list as the friendliest country for starting a business, at five times the cost. New Zealand has a 65 day licensing period. The survey showed that Israeli businesses spend approximately $70m. per year to negotiate their way through the bureaucracy, at least $55m. on opening new concerns forced to replace those closed by the burdens of the licensing procedures, and $265m. is spent annually to meet new and often unnecessary changes in the licensing laws. It also revealed that one-third of businesses operate without the necessary licenses. "Many don't know that they need the license," Mohliver said. "Between 1993 and 2003, we found only two businesses which followed the correct procedure in opening up shop."

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