Transcript Challenges to Private Investment in the Middle East

Challenges to Private Investment
in the Middle East North Africa
Region
…and what the World Bank is doing
Constraints to conducive private investment
climate in the MENA region:
 Regional stability
 Macroeconomic stability and openness
to trade
 Knowledge Infrastructure
Governance and institutions
Regional Stability: MENA region has had a
history of volatility – which has dampened
investment and tourism, and therefore job
creation
• Conflicts:
Lebanon, Israeli-Palestinian conflict, IranIraq war, Algeria, Gulf war
• Embargos
Libya, Iraq
• Uncertainty
September 11 aftermath, current Iraq
uncertainty
Macroeconomic stability and openness to
trade:
• Macroeconomic stability still dependent
upon oil revenues, remittances, and aid
• Fixed exchange rates have meant
competitiveness has been sacrificed
• Lagging indices of integration:
-- Trade/GDP
-- Lowest FDI in the world
-- Low non-oil exports (about $40 billion,
equivalent to Finland, despite 55 times
the population)
Exports as a proportion of GDP, 2000
MNA versus the rest of the World
Total exports as a share of GDP (percent)
60%
50%
40%
30%
20%
10%
0%
MNA
East Asia
Europe &
Pacific
Central
Asia
Non-oil
High
Latin
South Sub-Saharan
Income/ America
Asia
Africa
OECD
Caribbean
Oil
Knowledge Infrastructure
MNA Lagging on knowledge indicators
• 5% world population; 0.7% Internet users: lowest score in
the world
• R&D about 1/5 of industrialized countries
• 1998 book production
–
–
–
–
–
–
UK
Poland
Iran
Turkey
Egypt
Morocco
110,965
19,192
12,020
9,313
1,410
894
3
Governance and Institutions
Perception Data on Governance:
Voice and Accountability
173 Countries - ordered by income per capita
(1997/98 comparator also shown for selected countries)
HIGH
-2
LOW
-3
LOW INCOME
Source: "Governance Matters II: updated Indicators for 2000-01 " by Daniel Kaufmann, Aart Kraay and Pablo Zoido-Lobaton, Jan 2002.
UNITED KUWAIT
ARAB EMIRATES
QATAR
LIBYA
OMAN
SAUDI ARABIA
BAHRAIN
LEBANON
TUNISIA
JORDAN
IRAQ
-1
EGYPT
ALGERIA
IRAN
SYRIA
DJIBOUTI
0
MOROCCO
1
YEMEN
Normalized Voice and Accountability Index
2
Perception Data on Governance:
Control of Corruption
3
160 Countries- ordered by income per capita
(1997/98 comparator also shown for selected countries)
SAUDI ARABIAOMAN
BAHRAIN
LIBYA
LEBANON
TUNISIA
EGYPT
ALGERIA
IRAN
JORDAN
MOROCCO
IRAQ
-1
SYRIA
1
YEMEN
Normalized Control of Corruption Index
2
QATAR
UNITED ARAB
EMIRATES
KUWAIT
HIGH
-2
LOW
-3
LOW INCOME
Source: "Governance Matters II: updated Indicators for 2000-01 " by Daniel Kaufmann, Aart Kraay and Pablo Zoido-Lobaton, Jan 2002.
How did MNA get to the current situation?
• Oil windfalls and increased aid flows enabled governments to
ease poverty and unemployment problems through subsidies and
public employment
• The underlying structure of this Public Sector Model impedes
the type of diverse, private sector-led growth needed for
sustainable reductions in poverty
• Conflict provided rationale for not addressing domestic issues
• Consequences:
– State as paternalistic provider with large discretionary powers, escaping
discipline and accountability;
– State inability to continue to provide services opens up opportunities for
NGO service providers (often religious organizations) to build
constituencies
– Weak governance
– Poverty of participation
Five major challenges
• Public sector reform and governance
– Politically and socially difficult shift from public sector dominance
to private sector economic leadership
– Need to improve efficiency and effectiveness of public services
• Private sector development and job creation
– Essential to increase investment and create 4-5 million jobs each
year to educated youth, a fertile ground for social unrest
• Education for the global economy
– From quantity to quality (tuning to labor markets; global
citizenship; tolerance; etc.)
• Water management in a water stressed region
• Gender
– Unequal rights in many countries
– lowest female labor force participation in the world
The Bank’s Response:
New strategy and business model: Balancing
strategic lending and knowledge
• Delivering knowledge through lending often not
the most efficient vehicle
• The region wants knowledge for many reasons:
– information gaps, policy change, internal
consensus building, international best practice,
“seal of approval” to leverage other funds
• Response to demand for knowledge and advice: a
new knowledge instrument with all the pros of
lending - sustained engagement in activity
preparation, implementation, monitoring and
evaluation – but without financial transfer if it is
not needed.