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Economic performance and the business environment
Middle East and North African countries face a challenging macroeconomic context, characterised by persistently low GDP per capita growth. Since the global financial crisis of 2007-09, GDP per capita grew by only 0.3% a year on average in Egypt, Jordan, Lebanon, Morocco, Tunisia, and the West Bank and Gaza. That compares with 1.7% in the average middle-income country and 2.4% in the developing economies of Europe and Central Asia. In the 13 years since the crisis, the accumulated growth in GDP per capita in benchmark countries is 20 percentage points higher than in the average MENA economy. However, this observation is subject to several caveats: First, the average masks significant heterogeneity across countries. For example, GDP per capita growth in Egypt is high (2.1%) and the performance of Morocco also compares favourably to the benchmarks. Second, negative per capita growth in Jordan and Lebanon is at least partly related to high population growth, which reflects the large number of refugees from Syria that both countries host. To the extent that the refugee populations are supported by the international community, the GDP figures may not fully reflect the experience of the native populations.
Factors holding back the private sector
This report seeks to understand what lies beneath the relatively slow growth in the Middle East and North Africa, with a particular focus on the reasons for stagnating productivity and inadequate accumulation of human capital and physical capital in the region’s private sector. The business environment in the Middle East and North Africa is perceived to be challenging. Among the top obstacles cited by Enterprise Survey respondents were:
- Political instability;
- Management practices lagging behind best practices in comparable countries;
- Political connections and informality undermining fair competition;
- Businesses less capable of exploiting the benefits of trade, innovation and digitalisation;
- Few firms in the region investing in their workers;
- Difficult access to finance and low investment rates;
- Prohibitive market regulatory barriers.
Firms with political connections extract relative gains from their privileged positions. But the leveraging of influence also has the indirect effect of forcing competing firms to compensate with other means of political access. The region’s large informal sector also weighs heavily on established firms. Competition from informal economic activity results in lower growth expectations and consequently lower probability of accessing finance, as evidenced by fewer loan applications.