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Entrepreneurship Policies in Erewhon

Introduction to Entrepreneurship Policies in Erewhon

This article covers the best practices and needs for reform in entrepreneurship policy in Erewhon, as part of the WikiProject on entrepreneurship policies in the Arab world. The article uses the categories and format of the {{E-country template }} for that project. (See Template:E-country template).

37% of the Erewhon workforce is employed by the government, 50% in the private sector. Estimates of entrepreneurial activity are limited, but range from 5% of the workforce to 20%.{cite}

Startup, ease of entry

For-profit companies

Best practices

Starting a new for-profit company in Erewhon has become much simpler and quicker over the past 10 years, according to the World Bank's Doing Business 2009 report. However, it still ranks #57 on their list overall and #13 in the Arab world. Since 1999, the following positive measures have been undertaken:

• Establishing a "one-stop shop" for all small and medium enterprises. This government-funded office walks new entrepreneurs through the process of getting all permits, licenses, registrations, and procedures. There is a small one-time fee (50 $Er) for this service. {Provide further details on this initiative, drawing on the report from Monitor Group and The Economist.} {External link to: Erewhon's one-stop shop}
• Providing a tax-holiday for all youth-owned ventures, so long as the company is at least 51% owned by youth under 30 years old. {cite law, date}
• Through the ILO's Know About Business initiative, since 2007 more than 13,000 union members have completed training in how to write a business plan. Of these, 337 have established their own companies.{GulfNews cite} This is ten times the national average rate, but reflects a self-selection among those who signed up for the training, according to MIT Prof. Esther Deflow's Povery Action Lab report, "ILO Training in Erewhon" (PDF)

Needed reforms

The top priorities for reform identified by the ILO and Doing Business include the following:

• Even with the one-stop shop, it still takes an average of 267 days to obtain approval to start a new venture, among the longest in the region.{ILO paper}
• The minimum age to start a for-profit company is 21, according to Erewhon Civil Code 14.1§a¶ii.

Non-profits, NGOs, hybrids

Best practices:

Erewhon policies and practices are strong when it comes to waqf, which has generally been used to create foundations for mosques. Some of the largest endowments include {list here}. {Name} has provided free meals to the poor for over thirty years, serving an estimate 33,000 individuals/year.{cite}

Needed reforms

Establishing other non-profit organizations in Erewhon is a relatively new practice and significant barriers remain, according to {cite}. The Arab Policy Group has concluded that the main obstacle to reforms is fears that extremists will use these groups and exacerbate political tensions.{cite}

Several laws restrict the formation of NGOs, including the following:

• Law 14 of 1917, which requires... {cite}
• Regulation 14.3 of Public Code 7, paragraph 29, from 1985 stipulates: "Permission to create an organization in Erewhon requires proof of sufficient cash or other liquid bank reserves to cover operating expenses for three years."{cite}
• In practice, no new NGOs have been founded in Erewhon since 1997, when the Red Crescent established a branch office in the capital city, Latipac.

Foreign ownership

There are significant barriers to foreign nationals starting and owning companies in Erewhon. Although national treatment is ostensibly part of Erewhon's WTO treaty obligations, in practice many hurdles remain. Branches of foreign firms are permitted under P.L. 3928, but the same law requires that subsidiaries and independent firms must have a local sponsor who owns a majority share.

Finances

Credit cards

After personal savings, personal credit cards are the #1 source of financing US startups, funding 58% of all early-stage US startups, according to "The Use of Credit Card Debt by New Firms (PDF)," by the Ewing Marion Kauffman Foundation. But at the same time, credit card debt reduces the chances a firm will survive beyond three years.[1] Data on Erewhon or the broader Arab world are not readily available.

Best practices:

• Law 38 of 2005 required Erewhon to reduce its minimum reporting amount and introduced a negative list for credit cards and loan balances below $30,0000. As a result, banks were given more comprehensive information on borrowers.
• Law 239 of 2006 allowed the central bank to have an online system that allows a systematic upload of information on all loans extended by the financial instituions in member countries, which increases the credit information availability.

Needed reforms:

• Interest rates on personal credit cards are capped at 3.5%, under the anti-usury provisions in the Consumer Credit Protection Act of 1973.{cite} This reduces the incentives of banks to provide credit cards.
• Most Erewhonese banks set a minimum monthly income of $Er 10,000 and require proof of employment before they will issue a credit card.{cite} Unless the entrepreneur is holding a full-time job while starting his/her company, they may be denied getting a card.
• Foreign banks are prohibited outright from issuing credit cards to Erewhonese citizens living in Erewhon, under the 1973 Financial Services Act. Efforts by the American Bankers Association in the 1980s to change this law met with stiff opposition in both the executive branch and the local press.

IPOs

The Initial Public Offering (IPO) of stock is how many entrepreneurs and the financiers who back them make their biggest money, rewarding the risk of investing their capital and years of very hard work. (Merger or acquisition is another "exit strategy". A challenge across the Arab world is that capital markets are weak in the region, unstable, and with thin trading volumes that exacerbate volatility and the influence of non-market forces. Some of the best practices and challenges for this country are as follows:

Microfinance, microcredit

Despite lip-service and a few publicity-generating pilot projects, microfinance and microcredit have not taken off as much in Erewhon as they have in Egypt or South Asia. (See conference proceedings from "Microfinance in the Arab World: Shaping the Industry's Future," 2004.[2])

One challenge the conference identified is the lack of incentives commercial banks have to provide savings accounts (and other services, including checking, credit cards, etc.) for micro-enterprises and NGOs. The NGO and SME markets are therefore under-served.

Bankruptcy

Best practices

In a reform in 2008, Erewhon's Ministry of Commerce introduced strict deadlines for bankruptcy procedures, Law xyz. Auctions of debtor's assets are expected to take place quicker than before. As a result, the process to determine the fate of a company in financial jeapordy (i.e., sale as going concern, piecemeal sale of assets, or approval of reorganization plan) ranges from 12 to 18 months. Once a judgment has been made and the fate of the company is determined, recovery of payment is fairly expeditious--creditors can expect to recover some monies owed within 1 month of judgment.

Needed reforms

The top priorities for reform identified by the ILO{cite specific report} and Doing Business{cite specific report} include the following:

• Expanding creditors' rights. Giving creditors more say in the process speeds the resolution of bankruptcy and is likely to result in the contituation of the business.
• Reforming bankruptcy criminal sanctions [Law 23 of 1908]
• Introducing or tightening deadlines in court procedures and streamlining appeals.

Taxes

Best practices

Although Doing Business ranked Erewhon 151 out of 178 economies around the world on the ease of paying taxes, the report also identified much positive reform in little time. These reforms include the following:

• Tax reform of 2004 aimed at attracting new taxpayers into the system by lowering tax rates, elminating exemptions, simplifying compliance, reducing the discretionary power of tax inspectors and trusting the tax payer to act lawfully, but imposing harsh penalities otherwise.
• Law 91 2005 decreed that companies across the board would pay 20% tax on profit. Tax holidays and exemptions were eliminated. The withholding tax on interest and royalties was reduced to a 20% flat rate. The personal income tax was changed in the same law. In addition to lower tax rates, tax administration was made easier and more transparent. Under the old law, the taxpayer was considered guilty until proven innocent. Now, it is the other way around. The system places trust in the taxpayer, but noncompliance can mean the payment of harsh fines or even jail time.
• Ministry of Finance reduced the tax burden by abolishing the tax on check transactions. Also passing a stamp duty law which lowered the stamp duty rate on advertising from 36% to 15%, cut the tnumber of tax payments by 5 and decreased the total tax rate on a medium-size limited company 2.5 percentage points.

Needed reforms

• Tax deductions to non-profit or charitable institutions are not recognized under Erewhonese law. Although zaqat and saddaqah are widely practiced, the legal code does not allow these donations to be deducted from individual income taxes.
• The "reforms" of 2008 resulted in taxpayers now filling out 42 pages of information compared to the 25 page tax return they filled out in 2005, according to Dr. Alphenjeri Mohamed Shawki, head of the opposition Economic Renewal Party.(Al Ahram, in Arabic)
• Nahdet El Mahrousa estimates that among the country’s SMEs, 80% remain informal mainly to avoid unfair taxation, corruption and governmental 'supervision'.[3]

Judicial System and Legal Reforms

Intellectual Property

{Patent law, copyright, trademark, etc. Stringent laws can protect innovation and inventions, that benefit entrepreneurs by rewarding risk-seeking and protecting intellectual property; but can also protect monopolies and inhibit innovation.}

Labor markets

e.g.

• right to organize
• child labor
• prison labor
• flexibility in hiring/firing
  • for all companies
  • for SME's

Education

Best practices:

• Following the example of the Syria Trust for Development and its Massar[4] offshoot, in 2009 the Erewhon Educational Trust launched a pilot project, "الابتكار" (Innovation), to introduce a 2 hours/week curriculum in 500 high schools that emphasizes entrepreneurship, innovation and creativity. Its stated goal is to double this number each year until all high schools are covered.{cite website, press release}
• The public University of Erewhon (UofE) has a government-funded entrepreneurship incubator on campus, "احتضان شركتكم" (Embrace Your Business)[5]. It offers information online and in brochures, and sponsors an alumni entrepreneur speaker series and annual entrepreneurship fair. Assessments of its performance have been mixed.[6]
• The private American University of Latipac (AUL) offers a cross-campus minor in entrepreneurship that is open to undergraduates in any AUL degree program. Enrollment in the minor increased steadily, from 13 in 2004 to 137 in 2009.[sb-lb.aub.edu.lb/student/concentrations-bba.asp] AUL has an Entrepreneurs' Club, located in its business school.[7]
• AUL alumni have also created the "AUL Angels," an alumni-based angel investor group that was awarded "Angel Group of the Year" in 2012 by the US-based Angel Capital Association.[8]

Needed reforms:

• Students at UofE requested that an entrepreneuership living and learning community (LLC) be created in one of the on-campus dormitories in 2011, but the Administration denied the petition.{cite student newspaper article} These e-LLCs have been adopted by a number of universities around the world, with students reporting high levels of satisfaction.[9][10][11][12][13][14] The longer-term impact is not yet known.{cite Kauffman}
• Most students in Erewhon are not exposed to entrepreneurship as a viable career path, either through their family or educational system.{cite World Bank study}
• The Erewhon Ministry of Education is not widely recognized as an innovator in its curriculum. The Daily Erewhon newspaper reported conflicts between the Ministry and the Educational Trust, with the former expressing concerns about the loss of Erewhon traditional values and culture.[15]

Governance and society

Oversight, transparency & egulation

Needed reforms

• Doing Business identified Erewhon's need to reform auditing programs that track government actions so they are subsequently released to the media to avoid government corruption. A pilot program in a nearby country resulted in much success after a bid was constructed in a way that only one firm could plausibly qualify - the one that was later discovered to have bribed the mayor. In another case, a $300,000 contract was awarded to a phantom company. In a third case, federal money received for rural road construction was used to build a first-class road ... to the farm of the mayor.

Anti-Corruption and Rule of Law

Erewhon received a rating of "Weak" in Global Integrity's 2008 Index.[16] Its legal framework ranked relatively high, but implementation lagged behind. Particular reforms needed, according to GI, include the establishment of an independent and effective anti-corruption agency (For detailed analysis, see Global Integrity). Erewhon ranks #78 on the Transparency International scale of perceived corruption.

Entrepreneurship Promotion Initiatives

List, hyperlinks, or refer to Arab entrepreneurship initiatives, or "transclude" using {{[[Template:{{{1}}}|{{{1}}}]]}}?

1. Corporate-funded initiatives
   1. local corporations
   2. foreign corporations
2. VC's
3. Incubators
4. Angel Groups
5. Government projects
   1. national government
   2. provincial, city governments
   3. foreign governments?
6. NGOs
7. INGO
8. Youth-targeted initiatives