Sunday, September 28, 2008

Is Saudi really the easiest place to do business in GCC?"

Personally, I have no experience in doing business in Gulf Co-operative Council (GCC) except of course some experiences in the UAE. I guess from other businessmen, UAE is regarded the best place among GCC countries to do business.

According to Arabian Business, all six GCC states have appeared among the top 60 countries in the world to do business in, according to a report published jointly by the World Bank and the International Finance Corporation (IFC).

Surprise, surprise. Saudi Arabia and Bahrain have been named in a report as the best places in the region to do business.

A fortnight ago global financial markets took a beating when US investment bank Lehman Brothers filed for bankruptcy protection and Merrill Lynch agreed to be taken over, so news that the GCC is a good place for business couldn't have been better timed.

But despite being the bearer of good news, the report didn't fail to raise a few eyebrows with its rankings.

In an overview of the report Doing Business 2009, it's been revealed that Saudi Arabia and Bahrain are leading the pack when it comes to the best places to do business. Qatar comes in third followed by the UAE in fourth place. Kuwait and Oman are last on the list.

According to the report, the economies have been ranked on their ease of doing business. The index averages the economy's percentile rankings on 10 topics, made up of a variety of indicators giving equal weight to each topic.

They include setting up business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business.

The data accumulated covers the period from June 2007 to June this year.
But after speaking to contractors and developers working in the region, Construction Week learnt that most have called the report "inaccurate."

Can Saudi Arabia really be the easiest place to do business?

"The UAE is the easiest place to do business," said Haytham Al Tajir, chairman of a Dubai-based development firm, Al Tajir Real Estate.

"Nowhere else even comes close. We have property all over the Gulf and I have to say, the UAE is the fastest and quickest place to conduct business. I don't agree with the report."

Some GCC states faired better than the others under different topics.

To start a business based on the procedures, time and cost involved and minimum capital required, Qatar came out tops followed by Bahrain, Saudi Arabia, Oman, UAE and then Kuwait.

Bahrain topped the list for least procedures, time and cost required for acquiring construction permits, with Qatar and UAE following close behind. Saudi Arabia, Kuwait and Oman came in after, in that order.

But Belgian construction firm Six Construct general manager Philippe Dessoy who is currently working on projects in the UAE, Qatar and Oman expressed his doubts over the report and said that if any place was easy to work in, it would have to be the UAE.

"Acquiring construction permits anywhere in the region is difficult. In fact, it's a nightmare, so I wouldn't rate any place higher than the other," he said.

Saudi Arabia was named first with regards to having the least procedures, time and cost to register property followed in order by Bahrain, UAE, Oman, Qatar and Kuwait.

With recent scandals in the UAE involving some developers attempting to cancel already sold-out projects coupled with many high profile arrests on alleged charges of bribery and embezzlement, it comes as no surprise that the UAE was last on the list for best places for investor protection.

Kuwait topped this list followed by Saudi Arabia, Bahrain, Oman and Qatar.

Kuwait came in as number one again for the least procedures, time and cost required to enforce contracts. Oman, Bahrain, Qatar, and UAE followed in that order.

Despite Saudi Arabia topping the list on the whole, it came in last in this category.

The ease of pulling out or closing shop again saw the UAE come in last with Bahrain topping the category. Qatar, Saudi Arabia, Oman and Kuwait followed.

But Dahlia Khalida from the IFC and World Bank and co-author of the report said the rankings reflect reforms that have been made by these countries.

"The report is not recommending any country over another as best to do business in. It is based on the speed and level of reforms that have been made in these countries and Saudi Arabia has reformed the most."

"The UAE may still be the best place to do business in, but when based on the levels of reforms in the country, it is not among the top."

And the UAE is not beyond the need for reforms. Construction permits is an area that could do with some attention along with investor protection and contract enforcement.

Further, Rob Wagner, editor of Construction week wrote:-

While Saudi Arabia has reached out to Western businesses for trade and has brought contractors and developers to Jeddah, Riyadh and Dammam, there remains much work to truly make the country a relatively friendly place to do business.

Perhaps the biggest obstacle is the lack of codified laws. The Kingdom only recognises Shariah as the law of the land.

That means little to Western companies that want to be protected if disputes arise. Most business and labour regulations are issued through a royal decree. Commercial courts have been established since the founding of the country, but commercial disputes are generally settled by two Shariah judges and one legal adviser. Decisions by this committee can be appealed to the Ministry of Commerce.

In addition, non-Saudis are not permitted to act as commercial agents. If a non-Saudi wants to open a business he or she is required to have a Saudi sponsor. Another obvious impediment to doing business in Saudi Arabia is the requirement that all women must be accompanied to the Kingdom by a male guardian, such as a father or brother or even a son. There is a large segment of independent businesswomen who could do well in Saudi Arabia, but are excluded due to guardianship issue.

There are other issues that would take an entire issue of Construction Week to address: Wasta, the mind-numbing bureaucracy, poor infrastructure that in many cases make large projects virtually impossible to get off the ground, and the lack of coordination between various ministries.

It also should be noted that the World Bank's report is not entirely glowing in its praise for Saudi Arabia.
While positive reforms have been implemented, the report notes that no progress has been made in issuing construction permits, employing workers, obtaining credit, paying taxes (there are no taxes in Saudi Arabia) and enforcing contracts.

Yes, much has improved, but Saudi Arabia has a long road to hoe before it becomes the most business friendly.

2 comments:

Ismail Ibrahim said...

Asalamualaikum Tuan Fudzail
We meet in 2002, when you were with DIC, I really hope to be able to communicate with you, InysakAllah. my email is ismaili70@gmail.com
Anyways, Selamat menyambut Aidil Fitri. Maaf zahir batin. salam.

sharidah said...

Thank you this is very informative for me. Selamat Hari Raya for you and your family.