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Sustaining the Recovery and Looking Beyond

 

EDP COVER

Sustaining the Recovery and Looking Beyond: A Regional Economic Developments and Prospects Report, January 2011       (Full Report)

The impact of the global financial and economic crisis on the Middle East and North Africa region was relatively mild. Lack of integration and a large public sector helped insulate the region to some extent, but now these and other factors are slowing down the speed of its economic recovery. The report Middle East and North Africa: Sustaining the Recovery and Looking Beyond examines the major factors threatening the recovery and those that obstruct long-term growth—especially non-oil export growth. 

 Executive Summary (Arabic)
  

 Executive Summary (French) 

 

                               Contact:
Elena Ianchovichina
 eianchovichina@worldbank.org
  

 
 
The report Middle East and North Africa: Sustaining the Recovery and Looking Beyond examines the major factors threatening the recovery and those that obstruct long-term growth – especially non-oil export growth. The focus is on non-oil export growth as despite some progress in the past decade net exports contributed little to regional growth, and nonoil exports of goods and services remain below potential for the region as a whole. Furthermore, the growth response in developing MENA since 2000 has been modest in per capita terms compared to other developing regions, and the region has not been able to make substantial progress in reducing persistently high unemployment rates – especially among youth. The report underscores that while there are multiple risks to the short-term economic growth outlook, the region faces much more serious long-term growth challenges.

MENA continues to depend on the capital-intensive oil sector which has been and remains the primary vehicle for revenue and wealth creation in the region. Oil dependence however brings a number of challenges, and the labor-abundant developing oil exporters have been far less successful than the GCC economies in dealing with the pitfalls of oil dependence. Developing oil exporters have been suffering from weak institutions, conflicts, macroeconomic volatility, and Dutch disease which has spread beyond the oil exporters and become a threat to some oil importers receiving large remittances and finance from the GCC markets. While the outlook for oil remains promising in the medium-term due to strong demand for oil in Asia and other fast-growing markets, counting on oil will not generate inclusive growth in the region. Thus, the report pays special attention to issues related to competitiveness and nonoil sources of growth.

Although the report takes a differentiated look at the problems facing MENA countries, common messages can be distilled for the region as a whole. The report emphasizes three major areas in need of policy makers’ attention. First, the report confirms that governance issues linked to discretion in applying rules and regulations are a serious obstacle to firms’ growth, including the growth of export-oriented companies. These issues have led to stagnation, inefficiencies and privileged access for some, but limited access to services and information for micro and small firms. Second, it underscores the problems related to restrictive trade policies, particularly those affecting trade in services. Such policies distort incentives, discourage foreign direct investment, and limit MENA’s integration within the region and with the rest of the world. Third, the report finds that inefficient and inflexible labor markets and scarcity of skills, innovation and technological capabilities hurt firms’ productivity, limit employment creation and the technological content of MENA’s exports.

MENA governments need to step up efforts to improve reform implementation and design reforms that address the constraints identified in the report. In developing MENA, countries need to intensify efforts to strengthen institutions, improve governance and encourage private sector development. A priority should be to understand better the nature and extent to which nontariff barriers and regulations restrict trade in non-oil goods and services. Developing MENA countries should press on with financial market development – especially improving financial infrastructure, while further strengthening macroeconomic management, addressing inefficiencies in labor and goods markets, and facilitating innovation activities, knowledge and technological acquisition. In the GCC, more needs to be done to address the issue of skill shortages in a comprehensive way, and to understand the nature and extent to which regulations restrict trade and FDI in the services sector.

 
  
  
  
  
  
 
 
 
 
 
 

 




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