Corruption and bureaucratic hurdles continue to hinder inflows of foreign investment needed to stimulate further economic diversification in the countries of the Maghreb
Maghreb in numbers
176th: Morocco’s ranking when it comes to workers’ rights
168th: Algeria gets its lowest ranking for tax payment
160th: Algeria’s ranking for property registration
Source: World Bank Doing Business rankings
As international business slowly regains confidence, foreign investment is creeping back onto the radar. The bullish mood of the past decade has gone. This raises tough questions for emerging economies worldwide, as they seek the capital to drive their development.
Governments can act to create a more efficiently and fairly regulated business environment
Competition for the limited volumes of capital that are in play will be intense.
The countries of the Maghreb cannot escape these dilemmas, if they want to stimulate the economic diversification and employment growth that is required to underpin political and social stability.
And that puts governance squarely on their agenda. This means issues such as the regulatory environment facing businesses, especially foreign investors; curbing corruption; streamlining cumbersome bureaucracy; establishing impartial courts and mechanisms for dispute resolution.
Doing business in Maghreb
Investors also need other things such as market demand, reliable infrastructure and a good local workforce. So how do the states of North Africa measure up?
According to this year’s World Bank’s Doing Business ratings, the region’s highest ranked market is Tunisia – eighth best in the Middle East and North Africa (out of 19) and 69th worldwide (out of 183).
Morocco, although generally regarded as a business-friendly and pragmatic market, is in 128th place, while Algeria is 136th, only just ahead of Iran. Libya is not rated. By comparison, Turkey is 73rd, while Romania is in 55th position.
There is no stability or real continuity. It [Algeria] is like a country that is a real dictatorship
Although these overall rankings are based on analysis of numerous factors, including many non-governance matters, they highlight the challenges facing North African states if they are to present an attractive environment for foreign investors.
The detailed subject ratings within the Doing Business index reemphasise the scale of the reforms required if the Maghreb is to make itself genuinely competitive in terms of economic governance.
Tunisia is rated the world’s 47th easiest country in which to set up a business, but only 77th when it comes to effective enforcement of contracts.
The World Bank grades Morocco at 176th – among the worst in the world – when it comes to workers’ rights and 165th when it comes to the protection of investors. Algeria gets its lowest marks for property registration (160th) and for tax payment (168th). However, when it comes to contract enforcement, both countries perform rather better, although still lagging behind Tunisia.
|Doing business rankings *|
|Ease of doing business||Starting a business|
|*=Economies are ranked on their ease of doing business, from 1-183, with the first place being the best|
|Source: World Bank|
In competitive terms, the challenge for the Maghreb states is not to match the world’s cheapest labour markets or the most well regulated western economies. The countries they are vying against in the race to attract investment and stimulate business growth are other emerging markets, particularly in eastern Europe, the Mediterranean and the Middle East. This is where the much higher ratings achieved by the likes of Montenegro, Bulgaria or Saudi Arabia are significant. They highlight the distance North African countries have yet to travel in enhancing their investment competitiveness.
It is also worth noting that other Arab Mediterranean states, such as Lebanon and Egypt, do not rate dramatically better on the Doing Business index than those of the Maghreb.
Corruption concerns in Maghreb
Corruption is a further issue: Maghreb states are not particularly well-rated on the Berlin-based Transparency International’s index of perceived corruption.
While the ratings on transparency or doing business do not make for comfortable reading, they do highlight areas where government can act to create a more efficiently and fairly regulated business environment and root out the abuses that add to business costs and deter investors.
In Tunisia, for example, the authorities have introduced a new system for the submission of customs declarations that cuts back the opportunities for bribery.
Under this system, registered businesses can now submit online declarations of the goods they are bringing across the border. They are spared the visits in person by customs inspectors, which used to be one of the main situations in which bribes could be offered or requested. The officials no longer have any personal contact with regular trading firms whose dossiers they process.
At the same time, businesses that are not registered as regular users, or are regarded with suspicion, will still face the possibility of personal visits by customs inspectors. However, they will be supervised more closely, which should make it harder for corrupt officials to solicit bribes.
The Tunisian government has also sought to tackle the issue from the other side of the fence, by improving the working conditions of customs staff, so that the temptation to seek bribes is reduced.
Customs officers are now being offered bonuses, access to credit, health cover and other employment benefits.
Even so, some temptation for corruption will still exist, particularly where there are delays or a lack of information in the application of official procedures, leaving businesses under pressure to find a backdoor route to speeding up the approval of official paperwork.
In October 2009, Transparency International organised a Maghreb workshop in Rabat, at which campaigners from across the region highlighted the official secrecy and the judicial system weaknesses that allow corruption to persist.
Bribery allegations in Algeria
In Algeria, for example, the government has abolished the rule introduced in the 1990s by then-President Liamine Zeroual requiring senior military figures to make declarations of their personal assets.
The administration in Algiers was an early signatory of the anti-bribery convention. Yet it has refused to cooperate with investigators from foreign countries, who are looking into allegations of bribery by businesses based in their jurisdictions. This effectively blocks them from to carrying out any inquiry into possible corrupt payments made to individuals within Algeria.
Although there is no hard evidence to measure the scale of corruption, the problem does seem to have become significantly more widespread in recent years, as Algeria’s hydrocarbons revenues have risen. In particular, local campaigners believe that the huge budgets set aside for major public projects have allowed well-placed interest groups or individuals to skim off substantial funds.
Official action to curb the issue has been patchy. A November 2006 government decree made formal provision for the creation of an anti-corruption agency, but three years later it was still not in operation.
The law provides little protection for victims or witnesses of corruption, who summon up the courage to give evidence to the authorities. Under present statutes, whistleblowers are at risk of being prosecuted themselves, for defamation. A law has now been passed that formally criminalises illicit self-enrichment and threatens heavy sanctions for public servants, who cannot show that their personal assets are commensurate with their official salary and perks.
In practice, the enforcement of this law is weak. The government itself sets a poor lead by mostly ignoring the reports from the national auditor and these are also not even released to the public.
However this year, the Algerian authorities opted to send a dramatic signal, with a major probe into alleged high-level corruption at the state hydrocarbons company Sonatrach.
Top officials were placed under investigation and a number of projects have been put on hold. There have also been allegations of illicit payments in connection with contract awards for sections of the East-West motorway, one of the country’s most important infrastructure projects.
National attitudes in North Africa
While corruption and bureaucracy remain a problem across North Africa, economic governance in Algeria is further complicated by the country’s distinctive political attitude towards foreign influence.
Algeria’s bureaucratic structures and administrative procedures are not only burdensome, but are also often applied in an overtly political manner, claims a senior risk manager at a large European company with experience of the market.
She draws a sharp distinction between Morocco and Tunisia – which she sees as ‘normal’ emerging economies, where policy is shaped by financial or industrial considerations – and Algeria, where the nationalistic outlook weighs heavily. Tunisia has well-developed structures for arbitration and dispute resolution. The country has been suggested as the potential home of the Euro-Mediterranean Centre of Arbitration, which will deal with commercial disputes between companies in different countries within the region.
Meanwhile, in Morocco, the International Finance Corporation, a subsidiary of the World Bank, has helped establish an alternative mechanism for the rapid settlement of disputes involving smaller companies.
In Algeria, the situation is more delicate. Finding a strong local partner for investors can help to act as a shield against political pressures. But policy-making remains arbitrary and heavily shaped by political considerations.
“There is no stability or real continuity. It is like a country that is a real dictatorship,” says the risk manager.
The past two years have seen the imposition of tough bureaucratic controls and requirements that hinder the activities of foreign investors in Algeria.
“The difficulties that wireless operator Djezzy, the Algerian subsidiary of Egypt’s Orascom Telecom, has faced in Algeria … provide an extreme example of the downsides of the new political climate,” says an analyst at a western export credit agency.
Djezzy is one of the most profitable foreign companies outside the oil and gas sector in Algeria. Yet in September 2009, it was barred from repatriating half its 2008 dividends to the Egyptian parent company, pending an investigation into taxes allegedly owed to the Algerian government.
International risk assessors and investors believe that Orascom was singled out for political reasons, because it is a foreign company that dominates the local wireless market.
Libya, by contrast, appears much less wary of the influence of international investors. Foreign company involvement is not regarded with the same degree of caution.
Each of the countries of the Maghreb have ambitious plans for development. Their successful execution will depend on the finance and expertise from international firms. But to ensure this is received, the authorities have to create a welcoming environment for investment. Some are closer to achieving this than others.
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