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Economic Liberalization-Business Environment . Mounir Rached- Vice President Lebanese Economic Association. 5 th Economic Freedom of the Arab World Conference Cairo, November 1-2, 2010. Contents. I. Introduction II. Ranking index III. Global ranking IV. Relative ranking in MENA

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economic liberalization business environment

Economic Liberalization-Business Environment

MounirRached- Vice President

Lebanese Economic Association

5th Economic Freedom of the Arab World Conference

Cairo, November 1-2, 2010

contents
Contents

I. Introduction

II. Ranking index

III. Global ranking

IV. Relative ranking in MENA

V. Lebanese economy

VI. Recent achievements in Lebanon

i introduction
I. Introduction

Impact of Economic Freedom

  • Economic freedom has been shown to correlate strongly with:
  • Higher average income,
  • Higher income of the poorest 10%.
  • Higher life expectancy.
  • Higher literacy.
  • Lower infant mortality,
  • Higher access to basic services (water, medical),
  • and less corruption
  • Economic freedom does not mean anarchy, to the contrary it promotes quality of governance:
slide4
cont

Economic freedom provides:

  • Right of property ownership
  • Protection of property
  • Free movement of labor, capital, and goods
  • Absence of coercion or constraint of economic liberty

beyond necessary

ii index of economic freedom
II. Index of Economic Freedom
  • The index adopted by most rating groups:

Fraser Institute

Heritage Foundation

Economic Freedom Network)

  • comprises:
1 size of government
1. Size of Government
  • Taxes (government revenue/GDP),
  • Marginal tax rates
  • Government spending
  • Transfers & subsidies
  • Public enterprises share in GDP
2 legal structure
2. Legal Structure
  • Commercial law,
  • Security of Property
  • Enforcement of contracts
  • Judicial independence
3 sound money
3. Sound Money
  • Money growth: high rates cause inflation
  • Inflation: distorts pricing, misallocates resources, discourages saving and investment
  • Credit to Government: crowding out private sector
  • Foreign currency accounts: freedom to hold foreign currencies
4 freedom to trade internationally
4. Freedom to trade internationally
  • Tariffs (customs)

High tariffs restrict trade and impede growth

Increase prices that consumers pay for imports

  • Size of foreign trade
  • Regulatory trade barries
  • Capital market controls:

FDI

Other capital

5 regulations of credit labor business
5. Regulations of Credit, Labor & Business
  • Credit market regulation

Ownership of banks, interest rate controls

  • Labor market regulation
  • Business regulation: licensing, starting/closing business, administrative requirements:
  • Without redundant regulations & harmful barriers

In some countries obtaining a business license requires filling

a single form (few hours) in others it takes a full year

iii global ranking
III. Global ranking

Few MENA countries have espoused fully (proper) liberal economic policies since independence

The public sector remained engaged in many functions:

In education, in production, other sector activities etc.

The state is main holder of natural resources in all

global cont
Global cont
  • Most countries have a relatively low ranking in the global economic freedom index
  • Bahrain is ranked highest at 18th

(low scale higher ranking)

global cont1
Global cont

Countries are burdened by several components, some of the most prominent.

Corruption is perceived to be high in many- has one of the highest among peers.

Corruption is well entrenched

global cont2
Global cont
  • Property rights (enforcement of contracts) score is low

Its legal system is perceived to be politically

manipulated

  • Business (Investment)freedom score is low

Restricted licensing- cumbersome administrative

procedures- multiple phases-

Ceilings on certain investments

Restricted foreign ownership- restricted Direct Foreign Investment

Most though allow free movement of capital

slide15
cont
  • Global ranking of MENA countries (Fraser Inst 2008):
  • Bahrain 10
  • Qatar 27 Syria 140
  • Oman 34 Iran 171
  • Jordan 38 Libya 173
  • UAE 47
  • Saudi Arabia 54
  • Kuwait 61
  • Morocco 93
  • Egypt 96
  • Tunisia 100
  • Yemen 127
  • Algeria 132
slide16
cont
  • Lowest rating is for Korea: 179
  • MENA countries have lowest ratings among their peers (based on GDP)
slide17
Cont

Does not mean absence of welfare services

  • Some countries with high ranking (low score) have extensive welfare systems, such Iceland, Finland and Sweden, however they are less regulated than most others
lebanon economic freedom index
Lebanon- Economic freedom index

Lebanon’s Ranking in MENA (Fraser Institute):

  • Year 2002 : Rank 4
  • Year 2003 : Rank 4
  • Year 2004 : Rank 5
  • Year 2005 : Rank 4
  • Year 2006 : Rank 4
  • Year 2007 : Rank 3
  • Year 2008 : Rank 3
v lebanon size of government
V. Lebanon: Size of Government

Rank in the Arab World (2008): 1

lebanon sound money
Lebanon- Sound money

Rank in MENA (2008): 3

lebanon prominent features of lebanese economy
Lebanon: Prominent Features of Lebanese economy
  • Lebanon is by far the best performer in the size of government rating compared to the rest of MENA as it does not possess natural wealth (oil or minerals)
slide27
(Cont.)

2007

1. Gov Consumption /Total consumption = 13.82%

MENA Average = 24%

Transfers & Subsidies/GDP = 7.1%

MENA Average = 7.84%

slide28
(Cont.)

2. Taxes relatively low

Tax Revenue/ GDP = 14.8%

World Average = 29.26%

Top Corporate Tax Rate = 15%

World Average = 25.1%

VAT =10%

slide29
Cont.

3. Trade Freedom: one of the highest scores 8.9

vi lebanon recent achievements
VI. Lebanon: Recent Achievements
  • Gradual reduction of customs
  • Introduced VAT
  • Developing and modernizing tax procedures
  • Restructured Tax office
  • Automated tax payment
  • Transparency and openness to the public improved
achievements
Achievements
  • New competitiveness law (not adopted yet)
  • New Property rights law-WIPO based (not adopted yet)
  • New procurement law (not adopted yet)
  • Social security reform initiated
  • Privatization remains undecided (how to privatize) `
achievements1
Achievements
  • Free Trade Agreements were signed with Lebanon’s major trading partners; namely:
    • The European Union (EU),
    • The EFTA States (Switzerland, Lichtenstein, Norway, Iceland) and
    • The Gulf Cooperation Countries (GCC); and
    • A full establishment of the Greater Arab Free Trade Area (GAFTA) was achieved in January 2005
    • Lebanon is also actively negotiating accession to the World Trade Organization (WTO)
achievements2
Achievements
  • Recapitalized banks
  • Improved supervision
  • Political impasses delay reform

END