Despite two decades of economic reforms, private sector involvement in MENA economies remains below desired levels, Niveen Wahish reports Governments may be quite disappointed upon reading the new report released by the World Bank's MENA region office, From Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa. The report, which surveyed 10,000 firms in the region, showed that "the private sector has still not been able to transform MENA countries into diversified, vibrant economies with sustainable high growth records." The best performers in the region export around 1,500 low value-added goods compared to 4,000 in countries like Poland, Malaysia or Turkey, said Shamshad Akhtar, World Bank regional vice- president speaking at the launch of the report in Cairo. And with private investment averaging around 15 per cent of GDP, MENA remains far behind more dynamic regions. "Investors response to reform in MENA is lower than in other regions." Najy Benhassine, principal author of report, said it was not about implementing more reforms but about the impact and quality of reforms. "Laws have not been applied consistently nor predictably," he said. That weak and uneven implementation, according to Akhtar, has dampened investor response. The report estimates that in response to previous reforms, private investment in the MENA region increased by a modest two per cent of GDP, compared to 5-10 per cent in Asia, Eastern Europe and Latin America. "Too many would-be entrepreneurs believe the key to success is how connected you are, not how talented or creative you are," Akhtar said. In order to enable a new generation of entrepreneurs, she said, it is important that they see how reforms will benefit them, not just those with connections. Close to 60 per cent of business managers surveyed do not think that the rules and regulations are applied consistently and predictably. Yet, some success stories of reform do exist, Akhtar said, but the culture of reform "needs to be more deeply rooted." Benhassine agrees. It is difficult to attribute low performance to the absence of reforms, he said. The report shows that "increased openness and liberalisation over the past two to three decades has transformed the economies of this region from public-sector-driven economies to ones where more than 80 per cent of non-hydrocarbon value-added is produced by private enterprises." The call for a larger private sector role stems from the fact that 40 million jobs need to be created in the coming decade. According to the report, governments cannot create enough jobs so they must come from the private sector and be accompanied by higher productivity of firms and greater diversification. According to Benhassine, firms in MENA are much older than in more dynamic and faster growing regions of the world. Business managers are also older than elsewhere, despite being a region with a young population. Further, the average of registered firms per 1000 inhabitants is less than sub-Saharan Africa and Latin America. This is attributed to the difficulty of entering and exiting the market. To change this, Benhassine said, the playing field must be levelled for the region's businesses, with entrepreneurs encouraged to invest. That should happen not only through additional reform, but will require "increasing transparency and strengthening institutions that enforce the rules". In that process Benhassine said there must be greater involvement of the private sector in decision-making. And business associations should be reviewed to represent private business accurately. "The private sector has a responsibility," Akhtar said. "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 MENA. Their ability to influence the future direction of reform will be crucial."
