'Start-up nation' becomes better place to do business

Israel ranked 29 out of 188 economies surveyed by World Bank for having a business-friendly regulatory environment; third in ME.

The Tel Aviv Stock Exchange. (photo credit: Bloomberg)
The Tel Aviv Stock Exchange.
(photo credit: Bloomberg)
Israel has gotten much press recently for being a "start-up nation" that prizes ingenuity and some entrepreneurial chutzpa, but that isn't all it has going for it as a player in the global economy according to a rankings report released by the World Bank earlier this week.
The international organization's "Doing Business" project on Thursday released its annual global ranking of 183 economies based on a business-friendly regulatory environment for 2011, ahead of the new year. According to the World Bank, Israel ranks 29th in the world in terms of regulatory and economic environment friendly towards small and medium-size businesses. Israel's ranking for the upcoming year represents an improvement of one spot over its 2010 ranking of 30.
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The "Doing Business" project analyzes regulations that apply to an economy’s businesses during their life cycle, including start-up and operations, trading across borders, paying taxes, and closing a business. "Doing Business" emphasizes that its rankings do not measure all aspects of the business environment that matter to firms and investors, for example, security, macroeconomic stability, corruption, skill level, or the strength of financial systems.
In comparison to Israel's relatively impressive performance, regional neighbors Egypt, Jordan and Lebanon were all well-behind the pack with ranks of 94, 111 and 113, respectively. Moreover, despite Palestinian Authority prime minister and former International Monetary Fund official Salam Fayyad's attempts to build Palestinianinstitutions and stimulate the West Bank economy, the Palestinian territories ranked substantially behind all nearby Arab countries in terms of creating a friendly business environment ranking 135 in the world. Except that is, for Syria, which managed a shocking 144 out of 183 in the global rankings. The report stated that the PA did not help matters in 2010 by raising lawyers' fees for incorporating companies, although it has made progress in speeding up the process of customs approvals for imports and exports
Indeed an interesting observation that can be culled from the World Bank report is that the countries hastily seeking to align themselves with the Iranian mullahs have relatively disastrous relations with the business community, with or without sanctions.  The Islamic regime itself ranked 131 among the 188 economies surveyed. It's main ally besides Syria (again, 144 out of 188), Venezuela, was really pulling up the global rear with a rank of 172. For purposes of comparison, Shi'ite dominated (and heavily Iran-influenced), recently war torn Iraq was still ahead of dictator Hugo Chavez's socialist paradise with a rank of 166.
Erstwhile Israeli ally and current Iranian partner in the region, Turkey was the one exception, with a rank of 65. But how long this will continue is in question as Ankara's economic policies helped drop Turkey five spots from its place at number 60 in just one year.

Israel not friendliest economy for business in Middle East
The top ten economic administrations across the globe friendliest to business interests were, in ranked order, Singapore, the Hong Kong Special Administrative Region within China, New Zealand, the United Kingdom, the United States, Denmark, Canada, Norway, Ireland and Australia. This year marks the fifth year that Singapore ranks as number one across the globe in promoting a business friendly regulatory environment.
While not making the top 10, Israel still managed to appear ahead of several other well-established OECD countries in the rankings including, the Netherlands, Portugal, Austria, Mexico, Luxembourg, Chile, Spain, the Czech Republic and Italy.
It may, however, come as a surprise to many in Israel's business community and government who pride themselves on the country's recent admission to the OECD and status as a major global R&D center that the Jewish State is not the most business-friendly country in the region. Rather, that honor goes to Saudi Arabia, which received a global rank of 11, after focusing on implementing in the past year major reforms in four different areas highly important to businesses operating in the kingdom. Saudi authorities managed to "streamline the process of acquiring construction permits, launched the opening of a new container terminal at the Red Sea port of Jeddah, allowed more flexiblility for asset-secured lending and increased the efficiency of the business insolvency process by providing earlier access to amicable settlements between business owners and creditors," according to the report. The island-nation of Bahrain also narrowly edged out Israel for the 28th spot in the global rankings list and achieved the number-two position in the Middle East.
Based on the World Bank's report, it appears that many of the world's developing countries are striving to develop more competitive economies with 66% of such countries carrying out reforms to business regulations in the past year as opposed to only 34% as recently as 2005. Among the the top 30 countries with the most improved business environments since 2005, fully one-third were from sub-Saharan Africa.
Interestingly, many of the new regulatory improvements involved the implementation of new technologies to ease the bureacratic process of enforcing regulations.
“New technology underpins regulatory best practice around the world,” said Janamitra Devan, vice president for the Financial and Private Sector Development section of the World Bank Group. He added, “Technology makes compliance easier, less costly, and more transparent.”"
Israel's main improvement over the last year was indeed technology-driven with the implementation of a single-window framework for importer-exporters, allowing easier assembly of documents required by different authorities and reducing the time required to move international goods. An electronic single-window system allows users to submit their export or import information in a virtual location that communicates with all the relevant authorities for obtaining documents and approvals. Traders no longer need to visit different physical locations. This reform is what helped move Israel up one place from 30 in 2010 to 29th in the world for 2011.
In fact, Israel makes a decent trading hub, ranking in the top 10 globally for ease in trading across borders, just behind Asian powerhouses Singapore, Hong Kong, Korea and the Middle Eastern hub of the United Arab Emirates and significantly ahead of all Anglo-Saxon countries. Although, Israels strength in the area seems to be base mainly on the very low average cost of bureaucratic fees to import goods set at $605 per container.
Nevertheless, if Israeli authorities are really interested in promoting the country as global trading entrepot they should seek to emulate the example of South Korea.  The Koreans have implemented an electronic trade portal that "connects private sector participants such as banks, customs brokers, insurance companies and freight forwarders."

Israeli bureaucracy holds up entrepreneurs, property developers
Politically, the World Bank's report provides some support for Construction and Housing Minister Ariel Attias's recent claims that easing the process of granting building permits in Israel would help deflate the property bubble.
Israel, according to the report, ranks 121 across the globe in the ease in receiving construction permits and 147 for registering new properties. Surprisingly, registering private property is actually significantly easier in the West Bank and Gaza which ranks 76 globally (the Palestinian territories ranked 157 for ease in receiving construction permits).

Not surprising to locals, the main factor holding up Israeli entrepreneurs seeking to start companies in the Jewish State is the slow-moving Israeli bureaucracy. According to the World Bank's estimate,  while the number of procedures and costs involved in launching a commercial or industrial firm with up to 50 employees in Israel is actually below the OECD average, the number of days it takes to complete said procedures is approximately two-and a-half times as long.
For the average small-medium sized company this translates into five procedures to register the company with the relevant authorities that require 34 business days to complete, as compared to an OECD average of 5.6 procedures that are completed over the course of 13.8 business days. This may be the main reason why Israel is ranked 36 globally for ease in starting a business, below its overall ranking and perhaps adding a grain of salt to its claim to be a "start-up nation."
However, Israeli small businessmen may take solace in the knowledge that Israel is one of the easiest places in the world to receive business financing (number eight in the world), even slightly ahead of the US.
Israel is also a welcoming place for financial investors and venture capitalists, with legal protections for investors and minority shareholders among the top 10 in the world, again, just ahead of the US (eight vs. nine). One of Israel's most notable features in the area of investors protections is that it is one of only 15 of the 183 economies (including Japan) studied by the the World Bank report that allow full access to documentary evidence before and during trial litigation for all investors.