Israel’s heavy bureaucracy leads to corruption, think tank says

Israel slips 2 places in the World Bank’s Doing Business rankings for 2018, signaling burdensome business environment, says Israel Democracy Institute

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

Tel Aviv's Azrieli Center by night (Yehoshua Yosef/Flash90)
Tel Aviv's Azrieli Center by night (Yehoshua Yosef/Flash90)

Israel dropped two spots in the World Bank’s Doing Business rankings for 2018, from 52 to 54, pointing to the “burdensome and cumbersome business environment in Israel, which has a negative impact on the country’s competitiveness,” the Israel Democracy Institute said on Wednesday.

Just 11 years ago, the so-called startup nation was ranked 26th in the same category. The lower rating also impacts on the willingness of foreign and local investors to invest in the state, the nonprofit think tank said in a statement.

An initial analysis of the World Bank report shows that “while Israel is standing still, other countries have made significant advances in reducing regulatory and bureaucratic burdens,” the IDI said.

A failure to address burdensome regulation creates negative incentives for corrupt behavior, because companies feel they need to rely increasingly on intermediaries to bypass the bureaucratic process, the IDI said.

Increased bureaucracy also negatively affects equality of opportunity, since large and powerful businesses can retain the services of accountants, lawyers and intermediaries to help expedite regulatory processes while small and medium-sized businesses do not have the means to do so, the statement said.

“Ultimately, it’s Israeli consumers who suffer from the heavy regulatory burden that characterizes the business environment in the country,” the IDI said. “Business owners must deal with excessive costs of time and money, which leads to an increase in the cost of living for consumers who must effectively subsidize these outlays.”

The Israeli government must use technology to improve the interface of citizens with the government and to increase the transparency of business processes, said Dafna Aviram-Nitzan, director of IDI’s Center for Governance and the Economy. Sometimes it is enough to replace a printed form with an electronic one, and replace traditional regulatory measures with ones tailored to various segments of the population.

Prime Minister Benjamin Netanyahu (third from right) presides over the weekly cabinet meeting at the PM’s office in Jerusalem, October 15, 2017. (Alex Kolomoisky/POOL)

The World Bank ranking placed New Zealand at the top of the list — followed by Singapore, Denmark, the Republic of Korea, Hong Kong, and the US in the top six. Italy placed 46th in the ranking, with Croatia, Belgium and Cyprus ranked 51, 52 and 53, just above Israel. Somalia ranked last of the 190 nations listed, with Eritrea and Venezuela immediately above, at 189 and 188 respectively.

It takes some four procedures and 12 days to start a business in Israel, while dealing with construction permits requires 15 procedures and 209 days, the report shows, with 81 days required to register a property.  This compares with one procedure and half a day to set up a business in New Zealand, and 11 procedures and 93 days to deal with construction permits. It takes just two procedures and one day to register a property in New Zealand.

The government of Prime Minister Benjamin Netanyahu has made cutting back on regulation and bureaucracy a key mission on its agenda, to ease business growth and draw foreign investment.  In September, the Ministry of Economy and Industry said it was setting up a one-stop-shop for foreign businesses to turn to, to quickly address bureaucratic procedures.

The Finance Ministry did not immediately reply to a request for comment.

read more:
Never miss breaking news on Israel
Get notifications to stay updated
You're subscribed