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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 Template:E-country template).

As noted in the 2008 Legatum Prosperity Index Report's methodology paper, "no country has yet to introduce an agency mandated with the charge of promoting entrepreneurship" as a whole.[1] Policies affecting the creation and success of new ventures are spread across various government agencies and other societal groups.

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} It ranks 89th overall and 11th in the region in terms of economic competitiveness on the Legatum Prosperity Index.

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 overall and #13 in the Arab world. Dozens of entrepreneurship initiatives have been launched since 2001, receiving significant press coverage, as noted by StartupArabia.[2] 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)
• At the Federal level, minimum capital requirements were in principle abolished by Presidential Decree on 14 August 2009, amending Federal Law 8 of 1984. According to Karthik Ganesan, senior consultant at Dun & Bradstreet, "This will encourage new business formation in sectors like trading and services where business models may not necessitate high capital investments."[3] (However, see below, at the local level.)

==

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.{StartupArabia article, ILO paper}
• Despite the Presidential Decree waiving minimum capital requirements, at the local level small business owners are "still required to show proof of a minimum $Er 50,000 bank deposit to register their companies in the capital of Latipac and $Er 100,000 in the business center of Yenom." Erewhon's provinces have their own economic departments that regulate commerce.[4] These requirements amount to 312% of Erewhon's per capita gross national income (GNI), versus the OECD average of 20%.[5]
• 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.[6] 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.

Seed capital, angel investing

Best practices:

• The Sindibad Fund invests seed capital in Erewhonese entrepreneurs. It is a publishing project that hopes to play a central role in an Arab business and entrepreneurship renaissance. [7]

Needed reforms:

IPOs

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

Best practices:

• The Erewhon Capital Market Authority (ECMA) revised its regulations for IPOs in 2004, drawing on best-practices in European, US, and Japanese bourses.{StartupArabia cite, ECMA site}

Needed reforms:

• Only 134 firms have registered with the ECMA as of August 2009 and trade in the public stock exchange. Yet two million businesses are registered with the Erewhon Ministry of Commerce. 99.993% of Erewhonese firms lie outside of public ownership. The reasons for this include {list, citation}.

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.[8])

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 May 2008, Erewhon's Ministry of Commerce introduced strict deadlines for bankruptcy procedures, under Law 12 of 2008. 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{specific report cited in StartupArabia} 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

Doing Business ranked Erewhon 151 out of 178 economies around the world on the ease of paying taxes.{article from StartupArabia}

Best practices: The DoingBusiness report also identified much positive reform in a short period of 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 sadaqah 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'.[9]

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.}

Contracts, real property

As a general rule, economies that rank high on the ease of enforcing contracts, as reported by Doing Business, continually reform their courts to adjust to changing business realities.

Best practices:

• In 2006 Erewhon introduced special rules for cases below about $8,600. Resulting in reduced number of cases before the general courts in Erewhon City by 38%.
• In March 2008, a new law introduced mediation after a successful pilot showed that two-thirds of all cases referred to mediation in 2003-05 resulted in an amicable settlement.

Needed reforms:

Competition policy, anti-trust

In the report published, Competition and Efficiency in the Arab World, Erewhon's anti-trust policies were reviewed and were ranked 43 out of the 80 countries researched.

Best practices:

• The Fair Trading Act of 2004 enforces both consumer protection and competition law, acting as Erewhon's economic regulator through ensuring vigorous competition between fair-dealing businesses and prohibiting unfair practices such as rogue trading, scams and cartels.

Needed reforms:

• Enhance foreign competition not only through import penetration but also through export promotion to exploit scale economies by reforming Law 384.
• Improve access to support services – such as telecommunications, finance, transport and education – to improve efficiency (by lowering production costs) and to increase competition (from local to national or international levels).
• Reinforce the means and independence of the competition authority.

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[10] 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)[11]. 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.[12]
• 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.[13] AUL has an Entrepreneurs' Club, located in its business school.[14]
• 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.[15]

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.[16][17][18][19][20][21] 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.[22]

Governance and society

Civil Society, Public Information & Media

Best practices:

• A specialised court will be established to deal with media cases. Erewhon officials claim it will support freedom of expression and contribute to the development of journalism in the country. [23]
• Ostensibly, Erewhon's press is guaranteed freedom from censorship, according to the Erewhon Constitution of 1975. It is one of few countries in the Arab world to have a formal freedom of information law in place. Implementation, however, lags behind.

Needed reforms:

• Nonetheless, the Erewhon media remain under pressure by the government, as witnessed in a recent case where the courts sentenced a journalist to six months in prison for "spreading false news pertaining to the health status of the president." In late-2008 and 2009, newspapers were fined and editors called in before government officials to "explain" their "critical reporting on the economy," which was deemed to be "against the national interest."
• No mechanism or appeals process exist in Erewhon for citizens who are denied access to basic information, even within the court system.[24]

Elections

Best practices:

• Beginning in 2006, elections were held for a newly-created Shura, although its powers are limited. Voting turnout was high (estimated at 69%), but candidates had to receive approval from EUP to appear on the ballot.

Needed reforms:

• Erewhon does not choose its top decision-makers through elections and is not classified as a democracy according to Freedom House.
• The Erewhon Unity Party (EUP) is the only political organization permitted. The Constitution of 1975 specifies: "Freedom to form associations and unions on a national basis and by peaceful means shall be guaranteed in accordance with the conditions and manner specified by law." However, the Economic Growth Party was shut down by the government.[25]
• Erewhon has an election monitoring agency, established by Law No. 40 in 1977, modified by law No. 177 issued in 2005. However, it "is no more than a tool [of the government]" and its inability to make recommendations or report violations renders it entirely ineffective, according to Global Integrity.[26]
• There are absolutely no regulations governing the flow of private money into political campaigns in Erewhon, providing ample opportunity for influence peddling. [27]
• Entrepreneurs who lack deep pockets and do not have an group to push for their interests are generally excluded from the decision-making process, rendering reforms difficult.

Government Accountability

Best practices:

• The 2002 Government Procurement Act requires that five percent of all government contracts be set aside for "small and national-owned businesses." This has produced mixed outcomes, but some entrepreneurs credit it for giving them the initial contracts.{cite}
• An anonymous, online "complaint" was created in November 2008 through the auspices of the e-Government initiative. As of September 2009, 32,300 complaints had been received, mainly from guest-workers, and the government reported that 80% of cases were resolved.[28]

Needed reforms:

• Nepotism and cronyism continue to plague the civil service, especially in the promotion of civil servants to more senior positions.[29] Businesspeople complain about the lack of responsiveness to legitimate requests.
• Notwithstanding the November 2008 e-hotline, which runs anonymously, and lip-service, there is a complete absence of whistle-blowing protections.[[30] ] E.g., Ahmed Al Tajir, a 25 year-old entrepreneur who ran an online auction site, was arrested and held in solitary confinement for six months in 2006 after he posted a letter alleging corruption in the goverment-owned telecommunication service, that hindered his company's expansion.[31]

Oversight, transparency & egulation

Best practices:

• Government auditing is generally robust, and relies on the use of external private-sector accounting firms.

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 neighboring Nemistan 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.
• The budget process remains relatively closed and inaccessible to the public.[32]

Anti-Corruption and Rule of Law

Erewhon received a rating of "Weak" in Global Integrity's 2008 Index.[33] 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. Youth-targeted initiatives
2. Gender-targeted initiatives
3. Popular culture initiatives
4. By funder:
   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