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Towards prosperity in the Middle East

By Michael Klein

Tim Harford

Many young people in the Middle East and North Africa are struggling to find good jobs. We can all agree that we would like them to succeed. But why is it so difficult for them? Certainly not because of a lack of entrepreneurial skill or ambition. The streets of cities like Algiers and Cairo are crowded with clever and hard-working street vendors. They can be a pleasure for the tourist, a convenience for the locals, but a sign of ill-health for the economy.

Informal businesses pay no taxes and can avoid providing basic protection for their employees, who are disproportionately women, low-skilled workers and young people. Yet businesses do not lurk in the informal sector for fun. Unregistered businesses are denied access to the courts, to police protection, and to credit from the banks. Unregistered property is useless for securing a loan. If entrepreneurs could reasonably enter the formal sector, they would do so.

There is no longer any mystery as to why so much economic activity in the Middle East is in the informal sector. The World Bank's  reports Doing Business in 2004 and Doing Business in 2005 showed that many countries from the Middle East are tying up their formal economies in red tape: it currently takes just two days to set up a limited liability company in Australia and three in Canada, but over 45 days in Syria, the United Arab Emirates, Saudi Arabia or Iran.

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