Publication: Eliminating Minimum Capital Requirement and Facilitating Business Start-Up in Saudi Arabia
Date
2007-10
ISSN
Published
2007-10
Author(s)
Al-Awwad, Dr. Awwad
Abstract
With the 10-by-10 initiative's
inception, the Saudi Arabian General Investment Authority
(SAGIA) created the National Competitiveness Center (NCC) in
June 2006. Monitoring, assessing, and supporting the
simplification of the business entry process were among its
main roles. The NCC observed in June 2006 that
entrepreneurial activity in Saudi Arabia was low. One of the
reasons was the fact that the process for starting a
business was lengthy exceeding 5 weeks and costly, with one
of the highest minimum paid-in capital (MPIC) requirements
in the World- US$125,000. Businesses still started and were
registered, but only 12,194 were limited liability
companies, versus 646,900 sole proprietorships. Starting a
limited liability company was simply too costly. Saudi
Arabia boldly eliminated the minimum capital requirement,
which was 1,057 percent of income per capita. And it was
done in four months, reversing the common belief that
dropping the minimum capital requirement entails years of
legal procedures and debates. The author also cut other
start-up formalities, decreasing the number of procedures
from 13 to seven. In one year, the country's rank in
the ease of starting a business soared from 159 to 36 in
doing business 2008. Last but not least, new business
registrations jumped 81 percent. The author suggest there
were three key factors: (a) disregard the argument that this
is the way it was always done, and go for quick wins to
create momentum; (b) use a results-based incentive system,
with credit for the ones that deliver; and (c) use facts to
build coalitions and speed up the process.
Citation
“Al-Awwad, Dr. Awwad. 2007. Eliminating Minimum Capital Requirement and Facilitating Business Start-Up in Saudi Arabia. IFC Smart Lessons Brief. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/10642?locale-attribute=fr License: CC BY-NC-ND 3.0 IGO.”
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