Eliminating Minimum Capital Requirement and Facilitating Business Start-Up in Saudi Arabia

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.