Saudi Arabia Ranks among the Top 25 Most Business-Friendly Economies in the World
According to the World Bank’s Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises report released in October 2012, Saudi Arabia ranks as the 22nd most business-friendly country out of 185 economies worldwide and led the Middle East region on the list. Advancing one position from the previous year, Saudi Arabia continued to improve in a number of categories. By comparison, the U.A.E. ranks 26th, Qatar 40th, Bahrain 42nd, and Oman 47th. Further, the Middle East and North Africa (MENA) has a regional average ranking of 98.
The annual Doing Business report aims to highlight the level of ease or difficulty for a local entrepreneur to open and run a small to medium-size enterprise (SME) when complying with relevant regulations. The report measures and tracks changes in regulations affecting 10 areas in the lifecycle of a business, generally a local limited liability company operating in the largest business city. The data collected for the Doing Business 2013 report covered the period from June 2011-May 2012. The information highlights the extent of the obstacles to doing business and helps identify the sources of those obstacles in order to support policymakers in designing regulatory reforms.
Saudi Arabia advanced its ranking in two important categories identified by the report: Paying Taxes and Enforcing Contracts. The report also showed minor decreases in seven categories: Starting a Business, Dealing with Construction Permits, Registering Property, Getting Credit, Protecting Investors, Trading across Borders, and Resolving Insolvencies.
Ease of Doing Business
For the eighth consecutive year, Saudi Arabia ranks as the best country to do business in the entire Middle East and Arab World, ahead of regional competitors such as Bahrain, Oman, Qatar, and the U.A.E. Significantly, the report ranks the Kingdom ahead of major advanced economies, such as Japan and France, and emerging economies, including Brazil and India.
Starting a Business
Saudi Arabia is ranked 78th in terms of starting a business, down from 73rd last year. The rankings for regional economies such as the U.A.E. (22), Oman (73), Bahrain (88), and Qatar (109), as well as the MENA’s average ranking of 108, provide useful information for assessing the ease for a Saudi entrepreneur to start a business. Overall, it takes nine procedures and 21 days to complete the process. Saudi Arabia is one of only a few countries that requires no fee (as a percentage of paid-in minimum capital) to start a business. Significantly, the average fee for the MENA region is 72.3 percent. The process costs 5 percent of income per capita, a decrease from 5.9 percent last year.
Dealing with Construction Permits
In the category of Dealing with Construction Permits, Saudi Arabia is ranked 32nd. The rankings for regional economies such as Bahrain (7), the U.A.E. (13), Qatar (18), Oman (59), and the MENA regional average ranking (99) highlight the ease or difficulty in obtaining construction permits in Saudi Arabia. It currently takes 14 procedures and 103 days and costs 24.7 percent of income per capita (down from 30 percent from last year) to obtain all the necessary approvals to build a commercial warehouse in the country’s largest city, connect it to basic utilities, and register the property so that it can be used as collateral or transferred to another entity.
Saudi Arabia is the 12th country among 185 economies in terms of ease of connecting a facility to electricity. By comparison, the U.A.E. ranks 7th, Bahrain 48th, Qatar 25th, and Oman 54th. The MENA region has an average ranking of 76. In Saudi Arabia, a local entrepreneur needs to complete four procedures, spend 61 days, and pay 31.5 percent of income per capita to obtain a permanent connection from the Saudi Electricity Company, the only Kingdom-wide electricity utility company, to supply electricity for a standardized warehouse in Riyadh.
Saudi Arabia ranks 12th in Registering Property, on par with the U.A.E. Oman stands at 18th, Bahrain 29th, and Qatar 40th. Overall, the MENA region has an average ranking of 85. The Kingdom requires only five procedures and is one of the fastest countries to complete the process, averaging eight days. Further, Saudi Arabia is one of few countries that has no fee (as a percentage of property value) to register a property, whereas the average for MENA countries is 5.9 percent.
Globally, Saudi Arabia stands at 53 on the ease of getting credit, down from 52 from the previous year but ahead of the U.A.E. (83), Oman (83), Qatar (104), and Bahrain (129). The MENA region has a regional average ranking of 124. The data collected by the World Bank reflects how well the credit information system and collateral and bankruptcy laws in the Kingdom support lending and borrowing today. The economy has a score of 6 on the depth of credit information index (0-6) and a score of 5 on the strength of legal rights index (0-10). A higher score is indicative of more credit information and stronger legal rights for borrowers and lenders. The private credit bureau covers 33.3 percent of adults, up from 16 percent in 2011.
This category measures the strength of minority shareholder protections against directors’ use of corporate assets for personal gain or self dealing. Saudi Arabia ranks 19th out of 185 economies on the strength of investor protection index, down from 17th in 2011 but significantly ahead of Oman (100), Qatar (100), the U.A.E. (128), and Bahrain (129). The average ranking for the MENA region is 97. A better ranking indicates that an economy’s regulations offer stronger investor protections against self-dealing in three areas: transparency of related-party transactions (extend of disclosure index); liability for self-dealing (extent of director liability index); and shareholders’ ability to sue officers and directors for misconduct (ease of shareholder suits index). Saudi Arabia has a score of 9 on extent of disclosure index (0-10), a score of 8 on extent of director liability index (0-10), a score of 4 on ease of shareholder suits index (0-10), and an overall a score of 7 on strength of investor protection index (0-10).
When it comes to paying taxes, which is evaluated based on number of payments, total time, and the overall tax rate of SMEs, Saudi Arabia improved to the 3rd position, up from 10th in 2011. By comparison, Qatar ranks 2nd, the U.A.E. 1st, Oman 10th, and Bahrain 7th. The MENA region has an average ranking of 61. Although it still takes 72 hours per year for an employer to make the required three tax payments, the Kingdom has a tax rate of 14.5 percent of profit (2.1 percent of profit tax and 12.4 percent of labor tax and contributions). The report notes that Saudi Arabia made paying taxes easier for companies by introducing online filing and payment systems for social security contributions.
Trading Across the Border
Saudi Arabia ranks 36th in the world relative to the ease of trading across borders, falling behind the U.A.E. (5) but moving ahead of Oman (49), Bahrain (54), and Qatar (58), and still significantly better than the regional average of 79. Exporting a standard container for goods by maritime transportation requires five documents, takes 13 days, and costs $935 (SR3,506). Importing the same container of goods into Saudi Arabia requires five documents, takes 17 days, and costs $1,054 (SR3,952).
With this index, the Doing Business 2013 report analyzes data related to the time, cost, and procedural complexity of resolving a commercial lawsuit. The result is an indication of the efficiency of the judicial system in resolving a standardized commercial dispute before local courts. Globally, Saudi Arabia ranks 124th on the ease of enforcing contracts, up from 138th in 2011. Resolving a commercial dispute through Saudi courts requires 40 procedures, takes 635 days, and costs 27.5 percent of the value of the claim. By comparison, the U.A.E. is ranked 104th, Bahrain 113th, Oman 107th, while Qatar stands at 95th. The MENA region has an average ranking of 113. According to the report, Saudi Arabia made enforcing contracts easier by expanding the computerization of its courts and introducing an electronic filing system.
The Doing Business 2013 report studies the time, cost, and outcome of insolvency proceedings involving domestic entities. This ranking is based on the recovery rate, recorded as cents on the dollar recouped by creditors through reorganization, liquidation, or debt enforcement (foreclosure) proceedings. Saudi Arabia is ranked 107th on the ease of resolving insolvency, down from 102nd in 2011. Qatar is ranked 36th, Bahrain 27th, Oman 76th, and the U.A.E. 151st. The MENA region has an average ranking of 102. Resolving insolvency in Saudi Arabia takes 2.8 years on average and costs 22 percent of the debtor’s estate. The average recovery rate is 28 cents on the dollar.
Though a number of Saudi Arabia’s rankings fell, it is important to note that the report only considers regulation adjustment made during the previous 12-month period in comparison with changes made by other economies. In fact, there are numerous efforts in Saudi Arabia to support SMEs, including the establishment of an organization dedicated to the advocacy of SMEs and several programs designed to help provide funding. Additionally, the International Monetary Fund estimates that Saudi Arabia's real GDP will grow by 6 percent 2012, maintaining its position as the largest economy in the Middle East. Moving ahead, Saudi Arabia is expected to consolidate its substantial advantages - huge energy reserves, minimal public debt, low interest rates, a rapid population growth, and an ongoing massive fiscal stimulus, valued at $400 billion (SR1500 billion), to be spent through 2013. As the only Arab member of the G20 and the largest recipient of foreign direct investment in 2011, valued at $14.7 billion (SR55.1 billion), Saudi Arabia will maintain its focus on economic diversification and sustained growth while looking to deepen trade relationships with the world.