On May 8, Minister of Economy and Trade Sami Haddad said hewould submit a bill to the cabinet to streamline the existing business registration process in Lebanon byintroducing “one of a series of reform initiatives that will help create a business friendly environment in the country.”
Talk of reform may seem particularly hollow as parliament has not been convened since November, but Haddad said the new system could be in place by the end of the year as it does not require amending existing legislation orintroducing any new laws. While the reforms fall well short of the legislative overhaul required for Lebanon to enterthe World Trade Organization, if adopted, they willsignificantly reduce the bureaucratic mess potentialentrepreneurs must wade through to set up shop.
The plan will standardize the documentation necessary toregister a company and will introduce a uniform paymentsystem, which should reduce the time, cost and complexity ofcurrent procedures by 45%, said project manager GeorgesNicolas, who oversaw the program as part of an agreementLebanon signed in 2006 with the International FinanceCorporation (IFC), the private sector arm of the World Bank.
The long-term solutions recommended by the IFC – whichinclude reducing start-up costs and initial capitalrequirements and abolishing the mandatory use of a notarypublic, sworn translator, lawyer and auditor – would furthercut fees to 80% of the current costs, but may be slow toarrive. Nicolas said that his team also proposed ashort-term solution that can be introduced in two or threemonths because it does require changing laws.
The IFC drafted the new procedures based on the results of asurvey of 250 Lebanese companies to determine the regulatoryobstacles that businesses have encountered.
The introduction of a single standard document, designed bythe IFC, is one of the most important improvements of theproposed procedures, said Nicolas. Currently, the procedurecosts $2,000 because each business must hire a lawyer todesign individual registration forms. “The second mostsignificant solution is one application, one payment, oneinterface,” he said.
Under the current system, a business owner must makeseparate visits to pay fees to the Ministries of Finance,Justice, and Economy and Trade, as well as the NationalSocial Security Fund and the Commercial Registry. The singleIFC document can be submitted to all agencies andprospective entrepreneurs can pay all fees and collect allforms at the nearest LibanPost branch.
Though the IFC says it has “encountered absolutely noresistance” from any parties involved, Nicolas acknowledgedthat the government anticipates resistance from some parties– like the Lebanese Bar Association (LBA) – to some of thelong-term solutions. In the past, the LBA has lobbiedagainst legislation that would reduce the need for legalcounsel. But, given the limited scope of the first round ofmeasures, any substantial opposition remains unlikely.Though the current proposal reduces the time to start acompany, the costs will remain high. Any change in fees mustbe included in the state’s budget proposal, which needsparliamentary approval.
Aside from the few parties with a vested interest inmaintaining the status-quo, few in the private sector orgovernment are in favor of the current bureaucraticlabyrinth. It takes an average of 46 days to incorporate acompany in Lebanon, according to the World Bank’s annualEast of Doing Business Survey, which ranked the country 116out of 175. In 70 countries, it costs between 0% to 10% ofper capita income to establish a business, while in Lebanonit costs over 100% of the $6,200 per capita income. TheIFC’s mapping study, for example, showed that incorporatinga joint stock company in Lebanon took between 12 to 49 days,and required 17 to 24 different trips, 21 to 25 separateforms, and cost $3,500 to $4,000 in fees to lawyers,notaries, and various state agencies.
The main regulatory obstacles to starting a business citedby the IFC study were the length of time and number ofvisits required; high registration fees; the inconvenienceof trips and the quality of service provided by stateagencies; “complexity”; and the difficulty of preparingdocuments for submission to the commercial registry.
For the new procedures to take hold, the government stillneeds to sign a Memorandum of Understanding with LibanPost,train employees in relevant agencies, and CommercialRegistry judges must accept the new application package.While the measures seem relatively uncontroversial, someremain skeptical about the government’s willingness tointroduce even limited changes in a politically chargedenvironment.
Lysandra Ohrstrom is a journalist on the Beirut Daily Star and a regular contributor to the Lebanon Examiner