Judiciary’s Role Pivotal in Improving Business Environment

The judiciary branch can play a pivotal role in Iran’s economic growth, the chairperson of Competition and Privatization Commission of Iran Chamber of Commerce, Industries, Mines and Agriculture, Yalda Rahdar, wrote in an article carried by ICCIMA’s website.

A free translation of the piece follows:

Article 44 of the Iranian Constitution was supposed to introduce a change of approach in the governance of the country by bolstering the private sector and reducing the government’s role in the economy.

In practice, it helped create new economic entities, a combination of public and private sectors. But even if the privatization idea had panned out, it would not have necessarily ended up in economic growth.

Many countries have carried out privatization successfully but have failed to attract domestic and foreign investors. These repeated failures drew economists’ attention to the concept of “business environment” in the late 1990s. The concept suggests privatization, financing manufacturing units or creating infrastructures are not enough to trigger sustainable growth in investment.

Business environment consists of a series of factors that are not under the control of business owners. On the contrary, these factors have a direct effect on the performance of businesses.

The benchmark to compare countries’ business environments is the World Bank’s “Ease of Doing Business” index.

According to WB’s 2017 report (the latest report available), which analyzed business environments worldwide by breaking them down into 10 broad categories in accordance with the business life cycle from the start to the end, Iran was ranked 120th out of 190 economies in the Ease of Doing Business ranking, down three notches from its 117th place last year.

Broken down by sector, Iran moved up the rating ladder in two sectors, lost ground in seven areas and remained unchanged in one category.

In terms of “protecting minority investors” and “trading across borders”, Iran improved one step to rank 165th and 170th respectively.

On the downside, however, the country’s ranking in “starting a business” stood at 102nd of all countries surveyed, down five steps compared to 2016.

The country also slid from 90th to 94th place in “getting electricity”, from 85th to 86th place in registering property, from 97th to 101st in “getting credit” and from 99th to 100th in “paying taxes”.

Iran’s ranking dropped in “enforcing contracts” from 69th in 2016 to 70th this year and in “resolving insolvency” from 155th to 156th.

Iran’s status remained unchanged in “dealing with construction permits” sector from last year’s 27th.

Based on a decision by the Cabinet in the fiscal 2014-15, governmental organizations are tasked with improving the country’s ranking in all indices.

But a closer analysis of these sub-indexes shows not only executive bodies, but also other branches of the government, particularly the judiciary branch, play a significant role in some of these sectors.

At least five of the 10 indices fall under the purview of the judiciary, either directly or indirectly:

  Starting a Business: This indicator records the procedures, time, cost and minimum capital required to open a new business.

 Registering Property: This records the full sequence of procedures necessary for a business to purchase property from another business and transfer the property title to the buyer’s name.

 Protecting Investors: “Protecting minority investors” indicates the ability of companies to raise the capital they need to grow, innovate, diversify and compete. The report measures the protection of minority investors from conflicts of interest through one set of indicators and shareholders’ rights in corporate governance through another.

  Enforcing Contracts: The World Bank report measures the efficiency of the judicial system in resolving a commercial dispute before local courts.

  Resolving Insolvency: A robust bankruptcy system functions as a filter, ensuring the survival of economically efficient companies and reallocating the resources of inefficient ones. Fast and cheap insolvency proceedings result in the speedy return of businesses to normal operation and increase returns to creditors. This area studies the time, cost and outcome of insolvency proceedings involving domestic legal entities.

The attached graph indicates the fluctuations of these five indices from 2007 to 2017. Except for the “Registering Property” index, all other indices posted a downward trend, meaning they had worsened.

It is high time the judiciary branch introduced a change in current approaches and carried out reforms to improve business environment in the country.

To do so, the monitoring rules and regulations associated with the above indices should be identified in the first place. These rules include those from trade law to judiciary procedures; a fundamental, comprehensive probe.

Then, proposals and suggestions should be weighed carefully as well as regularly because all countries intend to improve their business environment from the point of view of reliable international indices.

On the global economic stage, a country that enjoys better business environment has higher potential to attract more investments, whereas countries that do not provide suitable conditions for business will not only fail to attract foreign investment, but will also lose their own domestic investment.

The efforts of the executive branch to improve business environment will succeed, if other branches of the government, particularly the judiciary, also cooperate.