Transcript Economic Liberalization-Business Environment

Economic Liberalization-Business Environment
5th Economic Freedom of the Arab World Conference
Cairo, November 1-2, 2010
Mounir Rached- Vice President
Lebanese Economic Association
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Contents
I. Introduction
II. Ranking index
III. Global ranking
IV. Relative ranking in MENA
V. Lebanese economy
VI. Recent achievements in Lebanon
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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
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Economic freedom does not mean anarchy, to the
contrary it promotes quality of governance:
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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
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II. Index of Economic Freedom
The index adopted by most rating groups:
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Fraser Institute
Heritage Foundation
Economic Freedom Network)
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comprises:
1. Size of Government
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Taxes (government revenue/GDP),
Marginal tax rates
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Government spending
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Transfers & subsidies
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Public enterprises share in GDP
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2. Legal Structure
Commercial law,
Security of Property
Enforcement of contracts
Judicial independence
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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
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4. Freedom to trade internationally
Tariffs (customs)
High tariffs restrict trade and impede growth
Increase prices that consumers pay for imports
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Size of foreign trade
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Regulatory trade barries
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Capital market controls:
FDI
Other capital
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5. Regulations of Credit, Labor & Business
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Credit market regulation
Ownership of banks, interest rate controls
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Labor market regulation
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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
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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
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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)
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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
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Global cont
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Property rights (enforcement of contracts) score is low
Its legal system is perceived to be politically
manipulated
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Business (Investment) freedom score is low
Restricted licensing- cumbersome administrative
procedures- multiple phasesCeilings on certain investments
Restricted foreign ownership- restricted Direct Foreign Investment
Most though allow free movement of capital
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cont
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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
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cont
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Lowest rating is for Korea:
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MENA countries have lowest ratings among their peers
(based on GDP)
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Cont
Does not mean absence of welfare services
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Some countries with high ranking (low score) have
extensive welfare systems, such Iceland, Finland and
Sweden, however they are less regulated than most
others
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IV. Relative ranking in MENA
Top Economic Freedom Achievers
in the Arab World
(Fraser Institute)
8.2
Final Grade
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Bahrain
Jordan
Kuwait
Lebanon
Oman
Qatar
7.8
7.6
7.4
7.2
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2002
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2003
2004
2005
2006
2007
2008
Lebanon- Economic freedom index
Lebanon’s Ranking in MENA (Fraser Institute):
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Year 2002 : Rank 4
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Year 2003 : Rank 4
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Year 2004 : Rank 5
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Year 2005 : Rank 4
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Year 2006 : Rank 4
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Year 2007 : Rank 3
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Year 2008 : Rank 3
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V. Lebanon: Size of Government
Rank in the Arab World (2008): 1
10.0
General government
consumption spending as a
percentage of total
consumption
Transfers and subsidies as a
percentage of GDP
9.0
8.0
Grades
7.0
6.0
5.0
Government enterprises and
investment
4.0
3.0
2.0
Top marginal tax rate
1.0
0.0
2002
2008
Year
Lebanon: Legal Structure and Security of
Property Rights
Rank in MENA (2008): 15
10.0
9.0
Integrity of the legal system
8.0
Grades
7.0
6.0
5.0
Regulatory restrictions on
the sale of real property
4.0
3.0
2.0
1.0
Legal enforcement of
contracts
0.0
2002
2008
Year
Lebanon- Sound money
Rank in MENA (2008): 3
10.0
9.0
Money growth
8.0
Grades
7.0
Standard deviation of
inflation
6.0
5.0
4.0
Inflation: Most recent year
3.0
2.0
1.0
0.0
2002
2008
Year
Freedom to own foreign
currency bank accounts
Lebanon: Freedom to Trade
Internationally
Rank in MENA (2008): 11
10.0
9.0
Taxes on international trade
8.0
Grades
7.0
6.0
5.0
Black-market exchange rates
4.0
3.0
2.0
1.0
Capital controls
0.0
2002
2008
Year
Lebanon: Regulation of Credit, Labor &
Business
Rank in MENA (2008): 3
10.0
9.0
Credit Market Regulations
8.0
Grades
7.0
6.0
5.0
Labour Market Regulations
4.0
3.0
2.0
1.0
Business Regulations
0.0
2002
2008
Year
Lebanon’s Score Over Time
2002
2008
Overall Score
7.8
7.6
Size of Government
8.7
8.4 Subsidy score
Law & Security of
Property Rights
6.1
6.1
Access to Sound Money
9.6
8.8 inflation score
Freedom to Trade
Internationally
7.3
6.8 capital controls score
Regulation of Credit, Labor, 7.2
and Business
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8.0 labor market improved
Lebanon: Prominent Features of Lebanese
economy
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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)
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(Cont.)
2007
1. Gov Consumption /Total consumption = 13.82%
MENA Average
Transfers & Subsidies/GDP
MENA Average
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= 24%
= 7.1%
= 7.84%
(Cont.)
2. Taxes relatively low
Tax Revenue/ GDP
World Average
Top Corporate Tax Rate
World Average
VAT
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= 14.8%
= 29.26%
= 15%
= 25.1%
=10%
Cont.
3. Trade Freedom: one of the highest scores
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8.9
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
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Achievements
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New competitiveness law (not adopted yet)
New Property rights law-WIPO based (not adopted yet)
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New procurement law (not adopted yet)
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Social security reform initiated
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Privatization remains undecided (how to privatize)
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Achievements
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Free Trade Agreements were signed with Lebanon’s major
trading partners; namely:
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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)
Achievements
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Recapitalized banks
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Improved supervision
 Political
impasses delay reform
END
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