The cost of starting a business index..Iraq and neighboring countries as a model

The cost component plays a crucial role in the economy due to its significant impact on the investment environment. The higher the cost of production in general and the cost of starting a business in particular, will make the investment environment less attractive, and consequently the volume of investment will decrease, and the performance of the economy will decrease and vice versa.

The Cost of Starting a Business in Iraq

The cost of starting a business means all the fees that have to be paid by businessmen to the competent authorities to establish a business, such as the minimum paid capital, bank account opening fees, tax return fees and others.

In this regard, the World Bank declares that starting a business includes all the formalities required of entrepreneurs or applied in practical practices to start and operate an industrial or commercial activity, in addition to the time and costs required and the minimum paid-in capital.

These procedures include obtaining all necessary licenses and permits, and completing any notices, evidence or data that require registration with the competent authorities related to the company and employees, all of which represent a cost.[i].

For example, but not limited to, Iraq imposes a condition for the formation of companies, which is that the minimum capital of joint stock companies is not less than two million dinars, the minimum for a limited liability company is not less not as one million dinars. , and the capital of the rest of the companies is not less than 500 thousand dinars.[ii]. Pay a fee of 10,000 dinars for each new store[iii]. Foreigners are not allowed to engage in retail sales until they have deposited $ 100,000 as security in an interest-free account with a bank authorized to operate in Iraq.[iv]and others.

The World Economy website will be launched to find out the cost rates to start businesses in Iraq and neighboring countries[v] With the extraction of average ratios for the period and the sum of the neighboring countries.

The average cost of starting a business in Iraq for the period 2012-2019 is 43.60% of per capita income, which means that the cost of starting a business is very high.

If the highest percentages, 70.50% and 51.90% for the year 2012 and 2016, respectively, are excluded as extraordinary percentages, the average cost of starting a business will be 37.71% of the average income per capita for the period 2012-2019, except for the years 2012 and 2016.

If we look at the cost of starting a business in Iraq, by the figure below, we will find that it is characterized by fluctuation between rise and fall, for reasons that can be related to a lot of complexity, which involves many procedures and extension of time, which is reflected in the cost of starting a business, which accounts for 70.50% of per capita income.In 2012, it then dropped to between 36.70% and 37.40% of per capita income for the years 2013-2015, as shown in the figure below.

Then it quickly returned to increase in 2016 with 51.90% of per capita income and then started to drop to 43.30%, 38.80% and 34.20% in 2017, 2018 and 2019.

Yes, it is striking that the cost of starting a business is very high in Iraq, and it is declining, especially in recent years.

But the question is, has this decline reached the level of ambition? This will become clear by comparing it with the cost of starting a business in neighboring countries.

The cost of starting a business in neighboring countries

The cost of starting businesses in neighboring countries can be seen by the figure below, where we note that all neighboring countries, Syria, Jordan, Saudi Arabia, Kuwait, Iran and Turkey; It is characterized by the low cost of starting a business compared to Iraq.

Neighboring countries will be dealt with from the least expensive to the most expensive in starting businesses, and we will note later the extent of the difference between them and Iraq.

Kuwait

Where Kuwait ranks first among neighboring countries in the cost of starting a business, which represents 1.9% of the average per capita income for the period 2012-2019, knowing that it is represented in the orange curve .

Iran

Iran is second among the neighboring countries in the low cost of starting a business, as it accounts for 2.2% of the average per capita income for the period 2012-2019, knowing that it is represented in the green color curve.

Saudi Arabia

Then Saudi Arabia was third among neighboring countries in the cost of starting a business, which accounted for 6.3% of average per capita income for the period 2012-2019, knowing that it is represented in the violet color curve.

Syrian Arab Republic

Syria ranks fourth among neighboring countries in the cost of starting a business, representing 10.4% of average per capita income for the period 2012-2019, noting that Syria is represented in the blue curve.

Turkey

Turkey is also fifth among neighboring countries in the cost of starting a business, representing 17% of the average per capita income for the period 2012-2019, knowing that Turkey is represented by the pink curve.

Jordaan

Finally, Jordan ranks sixth among neighboring countries in the cost of starting a business index, as it represents its highest percentage, which is 22.5% of the average per capita income for the period 2012-2015, and note that Jordan is represented in the color red.

Iraq and neighboring countries

When we compare the cost of starting a business in Iraq on the one hand and the total of the neighboring countries on the other hand, we will find that the neighboring countries perform better than Iraq in terms of the low cost of running a business start.

As it became clear above, the cost of starting a business in Iraq is 43.60% and 37% of per capita income after excluding the two highest percentages on average for the period 2012-2019 Neighboring countries (the sum of the average percentage of the cost of starting a business in the neighboring countries / the number of neighboring countries) is 10.5% of the per capita income of the average of the neighboring countries for the same period.

When we compare these percentages, we note that the cost of starting a business in Iraq is very large, more than three and a half times; The cost of starting a business in neighboring countries.

This result has contributed to the flight of national, as well as foreign, capital to neighboring countries on the one hand, and the increase in imports from them on the other, both of which have negatively reflected the national economy.

In order to revive the national economy, it is necessary to attract national and foreign capital and reduce imports, both of which require work to reduce the cost of starting a business, in addition to other factors beyond the scope of this article. .

Especially since the low cost of starting a business is an indication of investment attractiveness, which means the lower the cost of starting a business in the country, the more foreign investment will be, and it becomes positive on the whole national economy reflect.

Reducing the cost of starting a business generally requires that the fees, laws and regulations set by the official authorities be reconsidered for reduction and smoothness.

* Researcher at Al-Furat Center for Development and Strategic Studies / 2004-Ⓒ2022
www.fcdrs.com

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Reliable sources
[i] – The World Bank,
https://archive.doingbusiness.org/en/methodology/starting-a-business
[ii] – Company Act No. 21 of 1997 amended for the year 2004, Article 28.
[iii] – Trade Act No. 30 of 1984.
[iv] Ministry of Trade, Ministerial Instructions 196 dated 15/3/2004.
[v] – Global Economy website, https://www.theglobaleconomy.com/compare-countries/

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