Unlocking Sustainable Growth in the MENA Region Requires Reforms and Investment in Human Capital

Strategic Insights -

Weak economic growth and rising debt levels in the Middle East and North Africa (MENA) region have hindered its potential for development. A joint report by the European Investment Bank, the European Bank for Reconstruction and Development, and the World Bank highlights the need for reforms to support innovation, digitalization, and human capital investment to unlock sustainable growth. The report emphasizes the importance of addressing structural bottlenecks, such as regulatory barriers, informal business practices, and competition, to achieve sustainable economic growth and improve resilience to future shocks.

Key Takeaways:

  • The MENA region has experienced weak economic growth since the global financial crisis of 2007-2009 and the Arab Spring of the early 2010s, with GDP per capita growing by only 0.3% per year compared to 1.7% in middle-income countries and 2.4% in developing economies of Europe and Central Asia.
  • Public debt has increased significantly over the last decade, accompanied by declining investment, and the COVID-19 pandemic has further strained public finances.
  • The region's business environment has been held back by various factors, including political connection and informality, which undermine fair competition and affect only a limited number of companies.
  • Management practices in the region lag behind benchmark countries, with a decline in average scores since 2013.
  • Customs and trade regulations are more severe barriers for firms in the MENA region than in other countries, and only 20% of firms invest in innovation, which can affect long-term economic prospects.
  • The region needs to make better use of its human capital, with foreign-owned companies investing in training and digitally connected exporting firms being the exception.
  • Incentives for companies to decarbonize are weak, and MENA firms are less likely than their counterparts in Europe and Central Asia to adopt measures that reduce their environmental footprint.

Statistics:

  • GDP per capita growth in the MENA region has been 0.3% per year since the global financial crisis of 2007-2009 and the Arab Spring of the early 2010s.
  • Public debt has increased by X% over the last decade, accompanied by declining investment.
  • Only 20% of firms in the MENA region invest in innovation.
  • The region's business environment has been affected by a decline in average management practice scores since 2013.
  • Customs and trade regulations take longer to clear than in other countries.

Sources:

  • European Investment Bank, European Bank for Reconstruction and Development, and World Bank. (n.d.). Unlocking Sustainable Private Sector Growth in the MENA Region.
  • Debora Revoltella, EIB Chief Economist. (n.d.). Quoted in the report.
  • Roberta Gatti, Chief Economist for the Middle East and North Africa at the World Bank. (n.d.). Quoted in the report.
  • Beata Javorcik, EBRD Chief Economist. (n.d.). Quoted in the report.