MENA needs a better business environment
The results contained in the first Middle East and North Africa Enterprise Survey (http://ebrd-beeps.com/reports/ semed_es_report/) are quite instructive. The survey was conducted in Morocco, Tunisia, Egypt and Jordan from 2013-15 by the European Bank for Reconstruction and Development (EBRD), the World Bank Group and the European Investment Bank.
It identifies key challenges to private sector growth in the four countries surveyed based on the views of business managers in each country.
The three top obstacles that business leaders mention are political instability, corruption and the impact of the informal sector. All three obstacles are interrelated.
Businesses in Tunisia and Egypt, in particular, point to the damaging effects of political instability. Both countries have suffered from post-“Arab spring” turbulence and serious security problems and must counter the continuing terror threats. Jordan and, to a certain extent, Morocco also must deal with regional instability as they try to manage their economies.
Corruption is the second most serious obstacle cited by business leaders. They find themselves confronted with the problem almost every day, whether they seek to be connected to electricity or apply for an import or operating licence.
Then there is “the informal sector”, which represents 30-70% of economic activity in the Arab world and too often means tax evasion and neglect of worker protection laws. The sector unfairly competes with legitimate businesses that try to play by the rules and deprives the state of tax revenues.
Furthermore, the informal economy serves as a cover for money laundering and the financing of terrorism.
The problem of youth unemployment clearly has an effect on political instability, and unemployed youth are far more likely to be attracted to extremist groups. Youth unemployment remains higher in the MENA region than any other part of the world. It is estimated at about 28% in the Middle East and 30% in the Maghreb. In the four countries cited by the survey, youth unemployment percentages are 18.5% in Morocco, 31.2% in Tunisia, 38.9% in Egypt and 33.7% in Jordan.
In addition to addressing corruption and the informal economy, the survey results point to the need for many other socio-economic reforms without which the growth of the private sector and overall economic recovery will not take place. Sound social policies are needed to tackle the problems of poverty and marginalisation and introduce crucial reforms in the educational sector.
The employment of young university graduates requires value-added jobs that the precarious environment of the informal economy cannot provide. The already-bloated public sector cannot absorb more unemployed youth. A reinvigorated private sector can help create the needed jobs.
An urgent task for the region’s governments is to reduce the bureaucratic red tape that breeds the conditions for corruption and encourages young job seekers to engage in informal economic activity.
A better business environment in MENA will not come about however by passing a few business-friendly laws here and there. It will require major initiatives that address problems that have plagued economic production for decades. It is a generational project and it is well past time to start implementing it.