Cairo, November 9, 2009– A new report released by the World Bank’s Middle East and North Africa (MNA) region, From Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa, finds that the private sector is not yet generating enough jobs and sustaining higher growth in the region. A stronger private sector is needed as an estimated 40 million new jobs have to be created in MNA in the next decade.For this to occur, countries in the region need to reduce discretion in the business environment to encourage more entrepreneurs to invest. The playing field must be leveled for the region’s businesses. It will require increasing transparency and strengthening institutions that enforce the rules.
Reforms implemented over the past two decades allowed private enterprises to become the principal source of wealth generated in MNA economies outside hydrocarbons and mining. However, the private sector has still not been able to transform MNA countries into diversified, vibrant economies with sustainable high growth record. With private investment averaging around 15 percent of GDP, MNA remains far behind more dynamic regions. Export diversification has increased recently. Yet, the best performers in the region export around 1,500 goods—most of them low in technological content—compared with close to 4,000 in countries like Poland, Malaysia or Turkey.
Although investment climate reforms have accelerated in many countries, the issue is not only the extent of reforms, but how they’re implemented. The report estimates that in response to previous reforms, private investment in the MNA region had increased by a modest 2 percentage points of GDP, compared to 5 to 10 points in Asia, Eastern Europe and Latin America. The limited impact of reforms in MNA is due to the unequal and unpredictable way in which policies are implemented,resulting ina lack of reform credibility in the eyes of many investors. Close to 60 percent of business managers surveyed do not think that the rules and regulations are applied consistently and predictably. These surveys also show that policy uncertainty, unfair competition and corruption appear as major concerns for investors.
As the business environment does not apply equally to everyone, new generations of entrepreneurs have been slow to emerge and compete with incumbents. The report estimates that the number of registered businesses per 1,000 people is less than a third of that in Eastern Europe and Central Asia. And with less entry and exits of firms, the average business is ten years older than in East Asia or Eastern Europe.
According to the report, unleashing the entrepreneurship potential of the region will require moving from deeply rooted privileges to a level playing field for all investors. “MNA is a region endowed with considerable human capital, creativity and resources, and its growth potential is immense. Meeting that potential will require a credible commitment to reduce discretion and ensure a more equal enforcement of the rules, so that more entrepreneurs can invest and create jobs.” said Shamshad Akhtar, MNA Vice President.
The report calls for a three pillar strategy for building a stronger foundation for longer term growth: First, governments need to remove formal and informal barriers to competition. Where they exist, privileged positions and conflicts of interests between public servants and private investors should be reduced. Second, policy reforms must be supported by strengthening the institutions that regulate markets and interact with firms, in order to reduce interference and discretion in the enforcement of rules and regulations. “To really improve the business environment for all in the region, transparency, accountability and quality of service in public agencies should be at the core of the reform agenda” added Shamshad Akhtar. Third, the region must foster a new partnership between the private and the public sectors, one that mobilizes all stakeholders in the design, implementation and evaluation of economic policies. Only then will consensus be built around the reforms, and their credibility and effectiveness reinforced. A more open dialogue between governments and the private sector will also help guard against narrow interests taking over the public interest. As Shamshad Akhtar notes: “The private sector has also a responsibility in this agenda. Too often, its voice has been dominated by proponents of the status quo in order to maintain their privileges. Already, a new generation of entrepreneurs is slowly emerging in MNA. Their ability to influence the future direction of reform will be crucial”.
The report emphasizes that the private sector in the MNA region needs to be a stronger agent of change. Its needs to be more inclusive and better organized to demand reforms that benefit all firms.