A review of ۲۰۱۴ World Bank Report
First step is always the hardest. But according to the World Bank’s Doing Business ۲۰۱۴, in Iran, this may be even harder to the point where the idea is totally dropped by the entrepreneur. Based on the report, starting a business in Iran has grown even more difficult during the recent years and currently is harder than in ۱۰۶ other countries.
The report underlines that Iran's aggregate doing business ranking (comprising of 10 indicators) is 152 of 189 economies under study. Globally, Iran, stands at 107 in the ranking of 189 economies on the ease of starting a business. According to data collected by Doing Business, starting a business there requires 8 procedures, takes 16.0 days, costs 3.1% of income per capita and requires paid-in minimum capital of 0.4% of income per capita.
What do the Starting-A-Business indicators measure?
Doing Business measures the ease of starting a business in an economy by recording all procedures officially required or commonly done in practice by an entrepreneur to start up and formally operate an industrial or commercial business-as well as the time and cost required to complete these procedures.
Iran's ranking for this indicator has experienced a dramatic decline in the past 3 years from 42 in 2011 to 107 in 2014. A major part of such decline is attributed to the introduction of a new procedure requiring company founders to obtain a criminal record clearance to register a new company. The measure dropped Iran's ranking by 34 places. The procedure takes 3 to 7 days to complete. Other procedures also takes between 1 to 3 years as follows:
- Reserving a unique company name (3 days)
- Depositing at least 35% of the subscribed shares in a bank account and obtain proof thereof (1 day)
- Registering at the Companies Registration Office and paying the registration fees (3 days)
- Placing a notice of the company formation in the Official Gazette and the selected newspaper of general circulation (1 day)
- Retrieving the officially sealed books of account within 30 days of registration (1 day)
- Paying the share certificate stamp duty within 60 days of company registration (1 day)
- Enrolling workers in the social security program at the Iranian Labor Department and obtaining a workplace number (1 day)
Having discovered the 3000-billion-toman embezzlement scandal in 2011 where various superficially registered companies played a big part, the legal authorities preferred close monitoring to easing business start-ups. However, efforts are underway to make the start-up procedures simpler. For instance, Article 70 of the 5th National Development Plan (effective as of 2011) reiterates that: "The relevant body is responsible to streamline, coordinate and manage registration procedures for those business activities needing to obtain several permissions from various organizations through setting up a one-stop shop physically or virtually while observing the principle of simultaneity for issuing the permissions and the designated deadline in line with the overall policies of Article 44 of Constitution".
Despite the legal ground, it seems the efforts have not been fully translated into tangible results. However, in few months after the publication of 2014 Doing Business report some positive measures have been taken. For instance, the procedure for reserving a unique name for the company is now done electronically via a registration portal which deals with other requests regarding the applications and company by-laws. The initiative has significantly reduced the time required for reserving a unique name and the needed approval by the concerned authorities (during working hours even to one hour).
How Iran and comparator economies in the region rank on the ease of doing business?
According to 2014 Doing Business report, Iran stands at 16 in the ranking of 23 economies in the region (based on 2020 Vision Document) on the ease of starting a business. Armenia, Georgia, Azerbaijan, Kyrgyzstan, Uzbekistan, Afghanistan, Kazakhstan, Palestine, UAE, Oman, Saudi Arabia, Tajikistan, Turkey, Bahrain and Pakistan stand above Iran and only Yemen, Jordan, Lebanon, Syria, Kuwait, Iraq and Turkmenistan fall behind her. The first three countries namely Armenia, Georgia and Azerbaijan enjoy high rankings globally and stand among the first top ten.
Who performs best?
Economies around the world have taken steps making it easier to start a business-streamlining procedures by setting up a one-stop shop, making procedures simpler or faster by introducing technology and reducing or eliminating minimum capital requirements. 2014 Doing Business report introduces New Zealand at the top of the ranking. It takes as little as 1 procedure, half a day and almost nothing in fees in New Zealand to start a business.
In Armenia as the best country in terms of ease of starting a business, companies need to go through 2 procedures each taking 2 days to complete: registering in the online one-shop window and submitting company's sealed books.
What critics say?
In Iran, in an effort to verify the World Bank findings on Iran's ranking, the Business Environment Study Group in Parliament Research Center has concluded that the report did not reflect the realities.
According to the report published by the Group recently, as of May 2014, starting a business in Iran requires 6 and not 8 procedures, takes 11 and not 16 days, costs 0.6% not 3.1% of income per capita and requires paid-in minimum capital of less than 0.6% and not 0.4% of income per capita.
The report also insists that other procedures based on which the World Bank report decided on the ranking of Iran have either changed since setting up the online electronic registration portal or have never existed from the beginning. Based on the report, Iran's ranking regarding ease of starting a business would be 65 of 189 countries and 10 of comparator countries mentioned in the 2020 Vision Document.
What do critics of critics say?
Although the Parliament Research Center's report improves Iran's ranking on ease of starting a business indicator significantly, it seems a majority of economic actors cast serious doubt on its accuracy. In fact, some members of Business Environment and Entrepreneurship Commission severely criticized the report during a meeting held with the compiler to launch it. Ahmad Pourfalah, Chairman of the Commission, noted that: "Iranians have historically been afraid of presenting reality. It is evident that Iran's business environment has weakened during the past years; recession is visible in industrial towns and lack of transparency and accountability is rampant in administrative offices … In the past, the government used to consider such reports as purely political but today, even government officials refer to them in their remarks."
Ahmad Torknezhad, another member of the commission, also said: "business environment does not only need good rules to help the private sector operate; a combination of political, economic, social and ecological factors together foster an enabling environment for businesses; so it is vital to create an enabling business ecosystem where all these parameters are addressed simultaneously …. Questionnaires distributed by the World Bank among countries are well-structured and the respondents are chosen based on the conditions ruling the system; so the results should not be doubted and adopting such approaches as in Parliament Research Center do not take us anywhere. The solution is to assess macro dimensions of our business environment and take steps to remove obstacles."
Ali Naghib, another critic, noted that: "the problems of economic actors in business environment still persist, even if Iran's ranking jumped up to 83 from 152. It would be better for the Parliament Research Center to find practical solutions to redress the situation."
What needs to be done?
Although the report by Parliament Research Center considers that the World Bank report lacks precision, it reiterates that the result of verification cannot also be very heart-warming even if the assumed ranking of 65 for Iran in terms of ease of starting a business held true; because all economies are constantly trying to introduce more efficient regulations and procedures to improve their ranking in ease of starting a business indicator. The Parliament report then goes on to outline certain recommendation to redress the situation. It emphasizes that reform in regulations should be targeted at centralizing registration procedures in State Organization for Registration of Deeds and Properties as the one-stop shop for legal entities registration. In addition, the registration authority should not be treated as the channel for conducting supervisions related to other bodies. Refining regulations and establishing a proper link between 80-year-old regulations and basic and fundamental registration regulations for legal persons with a view to replace red tape with electronic procedures should also be addressed in parallel.
Supposing that 2014 Doing Business report was not precise, it is still vital to make more serious efforts to improve Iran's ranking in the region and compete effectively in terms of attracting foreign investment. The necessity is even further highlighted by looking at economies such as Afghanistan and Egypt who have experienced significant improvement in terms of ease of starting a business as reported by the World Bank.