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May 11, 2005

Blockages to Development in MENA

Praktike reports:

Development Porn | Liberals Against Terrorism: Lounsbury, everyone's favorite expat, reads a World Bank report, and then goes on a hot date:

[T]he minimum capital for starting... [businesses is exceedingly high in the MENA region, almost five times as high as the world average and well above any region of the world... the requirement is "a measure of the amount an entrepreneur needs to deposit in a bank account to obtain a company registration number.".... Eyeballing the chart, Egypt requires minimum capital (c. 2004) equal to 800 percent of per capita income, Jordan somewhat over 1000 percent of per capita income, Morocco somewhere around 750 percent, Syria around 5000 percent... Tunisia... 350 odd percent, UAE, 400 odd percent, Kuwait, somewhat under 180 percent. By way of comparison, the chart reflects an average for Latin America in the 50 percent rage, Asia-Pacific in the 180 percent range.

[...]

Now, I have all kinds of observations in this connexion but let me share rather a conversation I had, about this very point with my afternoon coffee companion. A banker for one of the largest (fully private, international) banks in the region.

[...]

I shared my outrage and incomprehension over these figures with her (Yes, sadly in taking coffee with attractive young women on the weekend, I remain unable to have light conversation. I am afraid she only puts up with it because she wants to bed me and my handsome passport. I remain coy. Ha...) and I believe rather got something of a window on the thinking -- perverse, conservative and risk-averse-- behind these otherwise completely incomprehensible numbers....

First, she argued that high minimum capital requirements are very positive because that ensures that undercapitalized companies are not created.... [S]he most interestingly asserted that the "wrong kind of people" would create firms if just anyone with a little capital was allowed to do so.... She also argued that there would be "too much" firm creation by doubtful types and that this would lead to explosion of failures, of bankruptcies.... As one might suspect, this absolutely horrified me and provoked a perhaps too excited anti-regulation rant.... The moronic mistake of the anti-globos, pushing for more "protection" for workers in terms of useless laws that will only present opportunities for rent seeking corruption...

Posted by DeLong at May 11, 2005 08:10 AM