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World Bank Group Assistance
World Bank Support Programs and Priority Interventions in the MENA Region
- Governance
- Finance and Private Sector Development
- Education
- Sustainable Water Resource Management
- Infrastructure Development
- Gender and Inclusion
Looking Ahead Overview Buoyed by sharply rising oil prices, the Middle East and North Africa (MENA) region continues to experience high economic growth. Over the last five years, GDP growth in MENA has exceeded 6.1% a year. On a per capita basis, MENA’s 4.1% average growth since 2002 is more than double the region’s per capita growth over the 1990s, and the strongest per capita growth performance for the region since the 1970s. The region’s growth advances have had significant spillovers for job creation, one of the greatest development challenges facing the MENA region. MENA countries are at the absolute crest of a labor force growth surge, with labor force growth averaging 3.4 percent a year.Yet in the midst of this burgeoning labor force, unemployment, which stood at 14.3 percent of the labor force in 2000 fell to 10.8 percent by end of 2005. And most of the region’s new jobs have come from the private sector, an important development for a region in which job creation, especially for an increasingly educated population, has become the litmus test for economic performance. However, the upturn in economic performance in MENA is more nuanced than suggested by regional indicators. Despite higher economic growth for the MENA region, in the context of developing world growth averaging 7.1 a year since 2002, the MENA region – despite being the major source of a commodity exhibiting record price advances – has been substantially outperformed. Moreover, the upturn in regional growth since the oil boom has not been evenly shared. On balance, resource-poor countries have not experienced significant spillovers from the oil boom, with the positive transmission channels to resource poor countries largely undercut by negative consequences on the external and fiscal fronts, in the form of higher oil import bills and energy subsidies. Many of the MENA countries have demonstrated long awaited progress on reforms to improve the overall environment for economic growth. Almost all of the countries in the region have taken significant steps to reduce impediments to trade. Tariffs have been reduced throughout the region, from a simple average of 20 percent in 2000 to 13 percent by 2007, resulting in the strongest regional progress in trade reform over the period. On the business reform front, however, despite a variety of strategies to improve the climate for investment, including interventions targeted toward specific sectors, broad-based policy reforms, and improvements to the backbone services for investors through service sector liberalization, MENA countries are collectively losing ground relative to the rest of the world, ranking in the 29th percentile with regard to reforms of the business climate since 2003. On the governance front, while the region has generally kept pace with reforms worldwide aimed at improving the quality of public administration, perhaps more importantly, many of the MENA countries have begun to address long needed reforms aimed at improving the accountability and inclusiveness of government institutions. Notwithstanding continued growth and reform performance, rising food prices represent a growing vulnerability risk for the MENA region. Rising food prices represent a growing vulnerability risk for the MENA region, especially in the context of poorly targeted safety nets. And the sharp rise in both oil and food prices have spotlighted the region’s heavy subsidization of prices within the domestic market, which particularly threatens fiscal positions for resource poor economies. The degree of poverty vulnerability is very high in MENA, with large numbers of people living close to (but above) the poverty line. Overall, while less than 2% of MENA’s population lives on less than $1 a day, some 20% of the regional population lives on less than $2 a day(the respective figures are 3% and 43% for Egypt and 10% and 45% for Yemen). With such deep clustering of large proportions of the population around the poverty line, the rising global food prices represent a serious risk to wider-scale poverty in MENA. While much of the economic landscape of the MENA region has changed positively, developments in the global environment call for some caution. The global financial (and other) markets have entered a phase of heightened uncertainty. Although MENA has only been modestly affected to date, the global slowdown in the United States (and elsewhere) is likely to impact the MENA region, through a tightening of credit and other channels, in the coming months and years. World Bank Group Assistance This year was difficult for many of our countries as they continued their efforts to mitigate the impact of the global increase in food and energy prices. As these global challenges continue to manifest their impacts, particularly on vulnerable groups, World Bank Group assistance will remain focused on improving governance and programs to the vulnerable while removing barriers to private sector development. In conflict-affected communities, the World Bank Group’s strategy is to reconstruct critical infrastructure and institutions for economic and social development and as well as to finance service provision to underserved communities. In IDA countries, the World Bank Group aims at strengthening institutional capacity while supporting governments to address priority gaps in health, education and social protection sectors. In middle income countries across the region, the World Bank Group focused its technical and financial assistance on: (a) supporting the pace of economic reforms and improving social safety programs targeting poor communities, (b) promoting private sector development, (c) enhancing regional integration into the global economy, (d) strengthening governance and institutions, and (e) supporting the management of new infrastructure projects. All four institutions comprising the World Bank Group coordinate their support to MENA’s growth and development priorities: the International Bank for Reconstruction and Development (IBRD), provides project financing, risk management products, and other financial services to middle income countries in the region; the International Development Association (IDA), provides interest-free loans and grants to the two low income countries in MNA (Yemen and Djibouti); the International Finance Corporation (IFC), expanded its portfolio in MNA to include equity investments, loans, guarantees and advisory services to private-sector business; and the Bank Group’s political risk insurance agency, the Multilateral Investment Guarantee Investment Agency (MIGA), has active projects in a number of countries. During fiscal year 2008, ending June 30, the World Bank Group committed US$1.77 billion in loans and grants to countries across the Middle East and North Africa (MNA) region. The recipients are using these funds in more than 29 projects designed to build the climate for investment and empower the poor while mitigating the risks associated with global challenges. IBRD commitments in FY08 totaled US$1.2 billion with a breakdown of lending as follows: US$506 million in the private sector, US$100 million in governance, US$325 million in energy, US$100 million in urban development, US$120 million in water, and US$11.5 million in education and social protection projects. During the same fiscal year, IDA commitments totalled US$53 million with US$50 million going to Yemen to stimulate non-oil growth, improve human development outcomes, improve fiscal sustainability, and address the sustainability challenges of using natural resources. Djibouti and Yemen received emergency grants totaling US$15 million from the Global Trust Fund that was set up in response to the food crisis. West Bank and Gaza received five grants totaling US$183 million. In support of private sector–led growth in the region, the IFC continues to pursue new investment opportunities and expand advisory services to improve the business-enabling environment. IFC’s investments in MENA increased to US$1.4 billion, covering 50 projects in 12 countries during fiscal year 2008. In advisory services, IFC’s total expenditure reached US$22 million, up substantially from US$5.7 million three years ago. With guarantees totaling US$430.7 million, MIGA’s gross exposure in the region rose significantly to 11 percent this year, in keeping with the World Bank Group’s strategy for greater involvement in Middle East and North Africa. This year, a project in Djiboutigave MIGA the opportunity to adapt its traditional business tools to provide a guarantee in support of Shariah-compliant project financing. World Bank Support Programs and Priority Interventions in the MENA Region During fiscal year 2007, the World Bank Group provided technical and financial support for reforms, as well as for emergency and reconstruction efforts in the MENA region. The World Bank’s strategy identifies cross-cutting challenges whose impact is taken into account with each intervention the Bank supports at the country level. These challenges are: governance, finance and private sector development, education, sustainable water resource management, infrastructure development, and gender and inclusion.
Governance Progress has also been made on the governance front. Evidence is already apparent in the growth of private sector investments and in the numbers of jobs created by the private sector over the past couple of years. However, the sustained impact of these trade and business reforms, within the context of a global competitive economy, remains constricted by many institutional and administrative barriers. MENA countries have made notable progress with respect to improving the quality of the public administration. By 2007, the region had risen to world averages with regard to the efficiency of the public sector, reflecting a range of improvements in combating corruption, addressing weaknesses in the judiciary, improving property rights, and streamlining bureaucracy. Beyond improvements to the quality of public administration, MENA has steadily implemented reforms to allow for greater accountability and to strengthen inclusiveness in public policy. Although, the region is still lagging behind with respect to public sector accountability, there have been notable actions taken within the last seven years, particularly among resource rich and labor importing states. Overall, the region’s efforts rank close to the top third of countries worldwide with respect to governance reforms, with the labor importing countries of the GCC ranking in the top quarter worldwide. Finance and Private Sector Development Helping countries pursue faster, more sustainable growth that is financed by a well functioning financial system is a crucial component of the Bank’s role in MENA. In the MENA region, the World Bank focuses its (financial and technical) assistance on broadening access to finance, through four key areas: (i) banking regulation and financial intermediation, (ii) building financial infrastructure (payment systems, credit registry, corporate governance), (iii) building markets for long-term finance (pensions, insurance, housing), and (iv) debt and equity market development. With respect to these areas, the Bank's assistance strategy is to: (1) identify structural strengths and weaknesses in existing systems, (2) provide assistance for improving financial sector intermediation through restructuring and/or privatization of state-owned banks, insurance and mortgage finance; (3) strengthen capacity for financial sector supervision; (4) help introduce legal and regulatory reforms that establish and maintain stable and competitive financial markets; and (5) support improvement in financial infrastructure. In order to support countries’ efforts to build a business friendly investment climate, good corporate governance, and a vibrant financial sector, the Bank has undertaken a number of Investment Climate Assessments (in Algeria, Egypt, Lebanon, Morocco, Oman, Saudi Arabia, Syria, Yemen, Jordan, West Bank-Gaza and soon Libya), Financial Sector Assessment Programs including updates (in over 15 MENA countries since 1999), and analysis, technical assistance and project-based support to help them implement the reforms. The regional flagship report on private sector development is forthcoming. This report will present research findings and evidence from years of experience advising governments and the private sector on competitiveness and private sector development. It will focus on the relationship between governance, accountability and private sector development. Also, the Bank has a comprehensive program of advisory services and technical assistance across the region (from the Maghreb to the Gulf countries) to strengthen legal, regulatory and administrative performance. Moreover, it is supporting and encouraging private-public partnerships for the development of infrastructure. The Bank Group partners with other international and bilateral donors (IMF, OECD, EU, EIB, USAID and DFID) on many of these activities. Education Education is central to the future of the Middle East and North Africa. Various stakeholders in the region regard education as their most important development challenge, and education reform is at the top of the reform agenda of many regional governments. In 2008, MENA launched a regional education report: “The Road Not Traveled”. The report aims to support policymakers in the region in developing more effective education strategies that are based on global and regional experiences in the sector. The report is grounded in a new paradigm that is expected to increase the effectiveness of reform efforts by emphasizing the central role of incentives and public accountability to meet sector goals. The report reveals that while MENA countries invest a higher proportion of their gross domestic product on education than other regions in the world, they continue to face challenges in developing high-quality education systems at all levels, as well as promoting life-long learning and training that respond to the needs of the labor market. aving succeeded in expanding education systems to include most eligible children—boys and girls—the MENA region is now ready to travel a new road. While the exact configuration of this new direction will not be the same for each country, all countries, irrespective of their initial conditions, will require a shift from "engineering inputs" to "engineering for results", along with a combination of incentives and public accountability measures, as well as measures to improve labor market outcomes. The report also urges governments to implement labor market reforms along with those for the education system proper. In MENA, labor market relevance extends much farther than the confines of any one country or even the region itself because of migration trends and employment opportunities abroad. Improving education systems, therefore, is an important component of the World Bank’s strategy to promote knowledge-based economic development and to facilitate the economic transition of countries in MENA. In particular, the Bank works with MENA countries to ensure equitable school access and retention; improve the quality and relevance of all levels of education and training; build capacity in education governance in both the public sector and in local communities; increase the efficiency with which education services are delivered; and improve the fiscal sustainability of public investment in the education sector. Furthermore, the World Bank has been paying increasing attention to disadvantaged children and youth (dropouts, working children, the disabled), encouraging MENA countries to develop cross-sector responses to ensure that this population also has access to quality education. The Bank has responded to diverse and changing needs through knowledge transfer and lending. This includes supporting access for Yemen and Djibouti to the Fast Track Initiative to meet Education for All objectives, as well as improving the capacity of the education systems in Jordan, Tunisia, and Morocco to adapt to the global knowledge economy. Projects in these three countries have focused on improving education quality and relevance, as well as introducing technology to the classroom. Sector work in Tunisia and Morocco has provided insight into the costs and financing options for higher education and is providing the basis for ambitious reform efforts. Sustainable Water Resource Management The MENA region is home to five percent of the world’s population, but contains less than one percent of the world’s renewable fresh water. While water availability remains relatively constant in these countries, demand has grown rapidly, leading to extraction rates beyond sustainable levels and a deterioration of environmental conditions. Water supply and sanitation services have expanded considerably in the region, but utilities are plagued by problems of deteriorating infrastructure, poor service quality and, in many cases, inadequate supply. Services are subsidized in all but two countries, which puts extra pressure on public budgets. Irrigation takes up more than 80 percent of the region’s water and is often used to grow low value crops. The drivers for water reform lie outside the traditional water sub-sectors, and these are changing in ways that might provide opportunities for reforms that have so far been elusive, provided that good governance mechanisms are in place. Developing such a flexible management system will involve addressing technical considerations, building adaptable institutions and developing transparent, inclusive accountability structures. The World Bank focuses its efforts in the MENA region on expanding and improving water services and water management by engaging and scaling up activities (e.g., in Morocco, Egypt, West Bank and Gaza, Iraq, Yemen, and Djibouti) and by building on sector policy dialogue in countries where the Bank has had long partnerships (e.g., Morocco, West Bank and Gaza, and Yemen). During FY08, the World Bank financed new water projects totaling US$229.5 million, with the following objectives: Extending services to the urban poor. The Bank has carried out several municipal development, rehabilitation (Morocco, Tunisia, and Yemen), and community infrastructure (Jordan) projects. Decentralization of service provision. The Bank has continued to promote decentralization of water supply service by helping create independent public companies responsible for service in small cities and towns (Yemen, Algeria, Jordan). Expanding wastewater collection and treatment services. In many countries of the region, the current focus of the sector is the improvement of sanitary conditions in urban areas through the collection and treatment of wastewater (e.g., Yemen, Morocco, etc.). Increasing rural access to water supply and sanitation (WSS). Rural water supply and sanitation have received the least investment support, and that support has generally been through multi-sector programs in the agriculture sector or social funds. Improving utility performance. The Bank is focusing on utility reform and improvement of water sector financing largely through an expansion of public-private partnerships. Urban water supply and sanitation operations are underway in seven of twelve countries. Management contracts were successful in Jordan, the West Bank and Gaza, and are in the pipeline for Yemen, which witnessed progress in corporatizing WSS services. Managing water resources effectively. Several water resource management projects have been launched focusing on groundwater management, water demand management, monitoring, water planning at the basin or aquifer level, environmental protection, inter-sector coordination and other issues. A water policy loan in Morocco was approved last year that deals with sector governance and service issues. Improving irrigation efficiency. Projects in several countries (Egypt, Yemen, Morocco, Tunisia, and Iraq) address the efficiency of water and energy use in irrigation, decentralization of management responsibility to farmers’ associations, pricing policies, re-use of treated wastewater, and other issues. Infrastructure Development The World Bank seeks to respond to unmet demand for infrastructure expansion and modernization in MENA countries by providing technical assistance and financial support to: (i) develop higher quality infrastructure that will expand access to markets and public services, and thus improve economic competitiveness;
(ii) promote long-term financial sustainability in infrastructure sectors through reform and capacity development;
(iii) implement management strategies that ensure efficient use of scarce water resources;
(iv) promote efficient and sustainable use of oil revenues in oil producing countries while mainstreaming renewable and green energy sources; and
(v) promote the region’s integration into the global economy as well as intra-regional trade through clean and efficient transport.
World Bank support to infrastructure development in the region is taking place through a mix of knowledge and lending services to the energy, urban development and transport sectors. Infrastructure lending reached US$767 million in FY08 against US$993.5 million in FY07 and US$589 million in FY06, and an average of US$232 million from FY02 to FY05. Egypt and Morocco have the highest demand for infrastructure lending, but demand in other countries is also significant. The energy sector is experiencing the strongest growth in lending from an average of US$6 million during FY02-FY05 to about US$315 in FY06 and US$325 million in FY08. The World Bank also supported grants to energy development totaling US$67.8 million (Gaza Electric Utility Management, Kureimat Solar thermal plant in Egypt, Wind power market development in Jordan). Gender and Inclusion Arab countries in MENA have made considerable progress in bridging gender disparities in the social sectors. Women’s access to health and education has improved markedly. Yet, gender gaps in economic and political participation remain wide. The World Bank’s strategy focuses on improving women’s economic opportunities and rights through enhancing women’s access to: (a) public resources through better gender budgeting;
(b) job markets, skills, and benefits; and
(c) assets through entrepreneurship.
Considerable progress has been achieved over the past year. In Djibouti, Yemen, and Morocco, gender is being integrated into public expenditure analysis and dialogue. Dealing with inequality in labor markets represents a major feature of the World Bank’s support to the gender agenda. In Jordan, these efforts have led to identifying and eliminating some of the barriers in national legislation to the employment of women and to improved social protection. In Morocco, analytical data suggests that female labor force participation actually declined by five percent during a time when the Government made considerable strides in improving women’s rights. The reason was that women were mainly employed in sectors that lost jobs or were in ones that were marginal to new job creation. The World Bank’s regional report on women’s entrepreneurship has provided timely evidence that women already play an important role in Arab economies. More than one out of every eight firms is owned by a woman (13%). Female-owned firms are nearly identical to male-owned firms in terms of age or ownership, sector, size, sophistication, export potential, FDI, and diversification. These firms also tend to hire more women, and more so in professional positions. This analytical work has put women’s entrepreneurship on the map of many policy forums and debates. PEP-MENA has also provided valuable training to women’s entrepreneurs. Looking Ahead o help meet the diverse challenges faced by the region, the World Bank will work to support each country’s unique long-term development goals. Within the context of the World Bank’s six strategic themes, the MENA region will intensify its efforts toward defining priorities and areas where Bank support offers a comparative advantage. In early 2008, consultations were launched with Arab organizations including the Arab League, regional development banks, and other key stakeholders to identify opportunities for advancing human and economic development while reducing poverty. The World Bank is also seeking ways to strengthen its engagement with civil society organizations and the private sector as key stakeholders in the process.
Updated: September 2008 Media Contact:
Dina El Naggar: Tel: (202) 473-3245; E-mail: delnaggar@worldbank.org
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