Middle East and North Africa: One More Chance

By Otaviano Canutoth, World Bank’s Vice-President for Poverty Reduction and Economic Management

Middle East and North Africa: One More Chance
The countries of the Middle East and North Africa (MENA) felt the crisis in different ways. Those in the Gulf Cooperation Council were hit on three fronts: lower oil prices, a credit freeze, and the bursting of the real estate bubble. Less integrated into global financial markets, the developing oil exporters suffered mostly from the sudden loss of value of their main export. And the oil importers saw a collapse
in trade (especially with Europe), a contraction in remittances, and a cooling of foreign direct investment. 
All this exacerbated the region’s chronic unemployment problem. It is not easy to see how it will create the 40 million new jobs it needs over the next decade, just to keep up with its young demographics.

The solution to that fundamental problem - and the key to unlocking MENA’s enormous potential - has
not changed much with the crisis (and varies very little across countries): the door has to open for a new generation of private entrepreneurs to emerge, and for women to join economic life.

Private investment did not respond

There has been no lack of reforms in the business environment over the past decade (Egypt led the way). But private investment did not respond—it lingers at half the level of East Asia— and manufacturing productivity did not improve—it stayed at half the level of Turkey. Why? Because many of the reforms were captured by unreformed institutions that favor connected, incumbent firms. 

The benefit of newcomers bringing state-of-the-art management, technological innovation, and the sheer energy to imagine brands and open markets did not materialize. Real competition has not started.

More critically, the region is yet to use the talent of its women. Ironically, they are more likely to attend university than men. But, on average, only one in four joins the labor force—much less the political leadership. Some progress has been made, notably in reducing fertility rates. However, at the current speed, the challenge of building a vibrant economy that can stand up to world standards will go unmet.

Frédéric Dubessy

Monday, October 8th 2012

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