World Bank report calls for creating a level playing field in the Middle East, North Africa

London: The private sector in the Middle East is not doing enough and might fail to create an estimated 40 million new jobs needed in a decade from now, a latest World Bank report said on Monday.

Titled, Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa, the report calls for creating a level playing field in the Middle East and North Africa (Mena) region.

Private investment in the Mena region had increased by a modest 2 percentage points of GDP, compared to 5 to 10 points in Asia, Eastern Europe and Latin America, it shows.

“The limited impact of reforms in Mena is due to the unequal and unpredictable way in which policies are implemented, resulting in a lack of reform credibility in the eyes of many investors. Close to 60 per cent of business managers surveyed do not think that the rules and regulations are applied consistently and predictably,” the report says.

The report also show that policy uncertainty, unfair competition and corruption appear as major concerns for investors.

It says, “An estimated 40 million jobs need to be created over the coming decade. These jobs will have to come from the private sector.

“A young and increasingly well-educated labour force is looking for opportunities to use their skills and creativity. Governments will not be able to create these jobs in the public sector. Neither will they be created in state-owned enterprises – at least not in sufficient numbers or in a sustainable manner."

Today, outside of hydrocarbons and mining, the private sector generates most of the wealth in Mena economies.

According to the report, unleashing the entrepreneurship potential of the region will require moving from deeply rooted privileges to a level playing field for all investors.

“Mena is a region endowed with considerable human capital, creativity and resources, and its growth potential is immense. Meeting that potential will require a credible commitment to reduce discretion and ensure a more equal enforcement of the rules, so that more entrepreneurs can invest and create jobs.” said Shamshad Akhtar, World Bank Vice President for Mena.

However, the UAE and Dubai has succeeded in developing a more vibrant business model by empowering the private sector and thus diversifying its economy which is no longer dependent on hydrocarbon.

According to the report, the UAE has topped the region in both the Macro-Policy Index and Trade Policy Index – that reflects the fact that the UAE is far ahead of the rest. However, in ease in doing business, the country needs to do more.

“Along with the growing GCC economies family businesses and the private sector are expanding in their own right. And this leads to two critical issues: need of professional management and funds to manage the growth. Both these areas are exceptionally sensitive for the promoters,” says Jitendra Gianchandani, Chairman, Jitendra Chartered Accountants, a business consulting firm based in the UAE.

Some of the private sector conglomerates employ more than 50,000 employees. Dubai-based ETA Ascon Group employs more than 58,000 people while Arabtec – the largest contractor in the Gulf at one point, had more than 50,000 people on payroll.

Besides, diversified conglomerates such as Al Futtaim Group, Al Ghurair Group employs tens of thousands of employees. Many UAE-based private sector conglomerates are looking at foreign acquisitions.

“The region’s private sector has shown strong resilience in the current tough and challenging economic scenario. Compared to publicly owned companies and multi-national companies, family-owned businesses were able to showcase their nimble-footed approach and were able to prune down costs, nip declining sales in the bud and enhance their profitability. But this is where the good story ends,” Gianchandani says.

The World Bank report calls for a three pillar strategy for building a stronger foundation for longer term growth: First, governments need to remove formal and informal barriers to competition. Where they exist, privileged positions and conflicts of interests between public servants and private investors should be reduced.

Second, policy reforms must be supported by strengthening the institutions that regulate markets and interact with firms, in order to reduce interference and discretion in the enforcement of rules and regulations.

“To really improve the business environment for all in the region, transparency, accountability and quality of service in public agencies should be at the core of the reform agenda” added Shamshad Akhtar.

Third, the region must foster a new partnership between the private and the public sectors, one that mobilizes all stakeholders in the design, implementation and evaluation of economic policies.

Only then will consensus be built around the reforms, and their credibility and effectiveness reinforced.