My firm registers a few dozen companies a year in Saudi Arabia, mostly larger foreign multinationals. Over the years, I’ve taken a love/hate view of the World Bank’s “Doing Business in the World” guide for Saudi Arabia, at least in terms of “ease of starting a business.”
The Bank reports that establishing a business in the Kingdom can take about 12 business days. For Saudis, it can actually require even less time. For non-Saudis, it will always require far longer.
Consider the Bank’s baseline assumptions:
The business:
* Is a limited liability company. If there is more than one type of limited liability company in the country, the limited liability form most popular among domestic firms is chosen. …
* Is 100% domestically owned and has 5 owners, none of whom is a legal entity.
If 5 Saudi individuals establish an LLC, the Bank estimates it will take 12 business days to complete 7 procedures. I’d estimate closer to 5-7 business days.
However, if 4 Saudi individuals and 1 European establish an LLC, the process requires over 15 procedures (possibly more) and will take at least 30 business days (often much longer).
Why the discrepancy? Most issues are procedural: the foreigner must authenticate documents from outside the Kingdom (add 1-3 weeks), obtain a foreign investment license (add 2-3 weeks), provide financial statements (add 1-2 weeks to translate to Arabic), obtain a visa, execute leases, and the like. Activities for foreign-owned LLC are more limited than for Saudi-owned LLCs. Foreigners may be allowed to consult or sell their own products in the Kingdom, but many additional hurdles exist.
Ostensibly, the World Bank changed its methodology in 2008 to foster “apples-to-apples” comparisons. However, when countries have separate regimes for foreigners and citizens, the rankings reward a sort of selective discrimination, and have other odd effects. Countries applying equal treatment to foreigners and citizens suffer (e.g., the European Union). Countries that set up preferred industrial zones suffer (e.g., #46 United Arab Emirates).
Saudi Arabia is serious about reform, but Bank’s ranking system actually impedes the effort – making important initiatives like e-governance unlikely to have much positive effect, while ignoring regulatory regimes that have disparate impacts (e.g., foreign companies undergo routine and intrusive inspections to maintain their foreign investment license – Saudi companies do not).
One way to improve the ranking would be to average the time frame for two different sorts of entities. That would penalize countries that discriminate against foreign investors, while recognizing strides made wherever they occur.
[...] in Saudi Arabia? Maybe…maybe not… In a series of posts (see Part I, II, or III) evaluating the World Bank’s Doing Business in the World ranking system, I noted [...]