Private sector holds the key to growth in MENA region, says report

26 Jul 16

The private sector must play a leading role in driving prosperity in the Middle East and North Africa despite political instability and a lack of financing, according to development banks.

The What’s holding the private sector back in MENA report was published jointly yesterday by the European Investment Bank, the European Bank for Reconstruction and Development, and the World Bank Group.

It suggests a raft of policy measures that could promote growth, drawing on lessons from the MENA Enterprise Survey, which canvassed 6,000 businesses across eight countries in the region.

Among the problems reported by respondents to the survey were political instability, corruption and intermittent electricity supply. Many of the firms also said innovation and growth were hamstrung by barriers to trade and a scarcity of appropriately trained workers.

Crucially, the survey revealed a “disconnect” between firms and formal financing channels, which meant that organisations were missing opportunities to grow.

The report said that strategies to support firms in enhancing their productivity, as well as the process of resource allocation towards more productive firms, should be a high priority for public authorities.

Also critical are improvements to the business environment, access to finance, education, employment and skills, and the promotion of trade, competition and innovation.

Sergei Guriev, EBRD incoming chief economist, said: “Identifying the impediments and challenges that are affecting the private sector and economic growth in the MENA region will help our institutions support policy reforms that can create a favourable business environment.

“From the beginning of our engagement in the region we focused on fostering the development of the private sector through tailored programmes, and investment in infrastructure and services, in addition to strengthening competitiveness which is key to addressing unemployment.”

He said that unemployment was one of the region’s biggest challenges, especially for women, the young and educated people.

According to the report, although the banking sectors in the region are actually fairly large, many firms are disconnected from sources of funding. This could be alleviated by developing the capacity of banks to strengthen their credit risk assessment.

It also suggested that credit guarantee schemes could ease collateral constraints, and strengthened transaction laws and improving the process by which collateral is registered would also help.

The report said this would support lending to small and medium-sized enterprises, without risking financial instability.

Debora Revoltella, chief economist at the EIB, said: “Finding a way to reconnect banks and firms is crucial to enhance growth opportunities in the region and international financial institutions have the expertise and willingness to complement domestic policies.”

She added: “Support for the private sector forms a key part of the EIB’s new initiative to build economic resilience in the region as well as to support countries in MENA.

“This Crisis Response and Economic Resilience Initiative has now been endorsed by EU leaders and will see a substantial stepping up of traditional activities, with action and investment for growth, jobs, vital infrastructure and social cohesion,” she said.

The report also encouraged administrations to remove barriers to women entering into the workforce, and provide more targeted education for the young. It also called on policymakers to offer incentives to firms to provide more training for staff, while recognising the important role high-innovation firms will have in employing younger people.

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