From Privilege to Competition: Unlocking Private-Led Growth in the Middle East and North Africa (Mena Development Report)

Contents......Page 6
Foreword......Page 14
Preface......Page 18
Acknowledgments......Page 24
Glossary of Terms......Page 28
Abbreviations......Page 30
What Is This Report About?......Page 32
Is the Private Sector Able to Play the Role of a Growth Engine?......Page 33
How Has the Private Sector Performed So Far?......Page 34
Is It about Missing Reforms?......Page 37
Is It about the Way Rules Are Implemented?......Page 40
Why Is It Difficult to Improve the Business Environment in the Region?......Page 43
Weak Demand for Reform: A Private Sector That Has Yet to Become an Agent of Change......Page 44
Weak “Supply” of Reforms: Policy-Making Institutions That Lack Credibility......Page 45
What Should Be Done Differently? Where Should Each Country Start?......Page 46
Getting Specific: A Roadmap for Credible Private-Led Growth Strategies in MENA......Page 47
Looking Forward......Page 53
1. Voices of Entrepreneurs—Stories of Success, Hope, and Challenge......Page 56
Listening to Entrepreneurs......Page 58
Government Successes and Pitfalls in Supporting the Private Sector......Page 61
Challenges Facing Entrepreneurs—From Regulatory Barriers to Conflict and War......Page 62
Privileges, Unlevel Playing Fields, and the Credibility of the Reforms......Page 66
Hope and Enthusiasm for the Future......Page 69
Part I Private Sector Performance in the MENA Region: Explaining the Untapped Potential......Page 74
2. Searching for Signs of Sustained Private-Led Growth in MENA......Page 76
The Growth of MENA Economies......Page 77
An Economy-Wide Perspective......Page 81
Figure 2.13 Lower Diversification of Exports......Page 94
Figure 2.15 Total Factor Productivity: MENA Countries and Comparators......Page 96
The Need for Humility in Prescribing the Keys to Private-Led Growth......Page 100
Figure 3.1 The Firm and Its Investment Climate......Page 102
Measuring Rules, How They Are Applied, and Expectations about the Future......Page 106
4. Policy Reforms in MENA, Their Credibility, and Their Implementation......Page 110
Is the Problem with Missing Reforms?......Page 111
Figure 4.4 Private Investment Has Been Rising......Page 115
Figure 4.7 Private Investment’s Response to More than a Decade of Reforms Has Been Relatively Weak, 1990 and 2006......Page 117
Symptoms of a Business Environment That Is Not the Same for All......Page 128
Summing Up......Page 135
Part II Policies and How They Are Applied: State Intervention and Discretion in Credit, Land, and Industrial Policy......Page 138
5. Access to Credit in MENA: Toward Better Supervision and Less Interference......Page 140
Figure 5.1 Total Credit to the Private Sector Compares Well with Other Developing Regions, 2007......Page 142
Figure 5.4 Dissatisfaction with Access to Finance......Page 144
Figure 5.5 Dissatisfaction Increases with the Demand for Credit......Page 145
What Can Governments Do to Increase Access to Credit?......Page 148
6. Reassessing the State’s Role in Industrial Land Markets......Page 160
Table 6.1 Registering Property (2009)......Page 161
Sources of Inefficiencies in Land Markets......Page 163
Getting the Incentives Right in Enclaves......Page 173
Power and Rent Seeking in Public Land Allocation and Regulation......Page 174
The Way Forward......Page 176
7. New Industrial Policies: Opportunities and Perils of Selective Interventions......Page 182
A Tradition of Subsidies and Selective State Interventions......Page 183
A Framework to Clarify a Controversial Debate......Page 184
Private Sector Policies in MENA—A Legacy of Disproportionate Interventionism......Page 190
Assessing Risks of Industrial Policy Interventions......Page 193
Should Oil-Rich Countries Intervene? Yes, but the Risks of Failure Are Higher......Page 197
A Final Cautionary Note: Industrial Policies Could Succeed if the Right Conditions and Processes Are in Place......Page 198
Part III Designing Credible Private Sector Reforms Informed by Political Economy Realities......Page 200
8. Institutions and State-Business Alliances Constraining Reforms and Credibility......Page 202
Weak Supply of Reforms: Policy-Making Institutions That Lack Commitment and Credibility......Page 204
Weak Demand for Reform: A Private Sector That Has Yet to Become an Agent of Change......Page 213
What Can Reformers Do to Change the Political Economy Status Quo?......Page 222
9. Rethinking Private Sector Policy Making in MENA......Page 226
What Should Be Done Differently to Realign Investor Expectations?......Page 227
Looking Forward: Unlocking the Region’s Private Sector Potential......Page 238
References......Page 240
Index......Page 250
Table 4.1 Private Sector Priority Constraints from Enterprise Surveys, 2003 and 2005–08......Page 119
Table 5.1 Efficiency of Credit Markets......Page 141
Table 6.2 Industrial Land Prices in Selected MENA Countries......Page 168
Table 8.1 The Public Sector Wage Bill in MENA and Comparator Countries, 2001–05......Page 210
Table 8.2 Advocacy Priorities of Business Associations Do Not Match the Top Constraints of Enterprises......Page 220
Figure 0.1 Stagnating Private Investment Rates......Page 35
Figure 0.2 Lower Diversification of Exports......Page 36
Figure 0.4 Reform Episodes and Private Investment Response......Page 38
Figure 0.5 Overall, the Business Environment in MENA Countries Looks “Average,” as It Does in Many Fast-Growing Economies......Page 39
Figure 0.7 Perceptions about the Consistency and Predictability of Rules and Regulations as They Are Applied in MENA Countries......Page 41
Figure 0.8 The Lasting Influence of the Business Elite and the Lack of Dynamism and Competition in the Private Sector......Page 42
Figure 1.1 Most MENA Economies Are Private Sector Based, 2005 and Previous Decades......Page 57
Figure 2.1 Middle East and North Africa’s Weak Growth in International Perspective......Page 79
Figure 2.2 Middle East and North Africa’s Growth over the Long Term......Page 80
Figure 2.3 Contributions to the Growth of GDP in 2007—Insufficient Role for Exports......Page 82
Figure 2.4 Private Investment as a Share of Total Investment......Page 83
Figure 2.5 Private Investment as a Share of GDP, 1995–2006......Page 84
Figure 2.7 Net FDI Flows as a Share of GDP, 1970–2005......Page 85
Figure 2.8 Structure of Foreign Direct Investment, Cumulative 2000–07......Page 86
Figure 2.9 Manufactured Exports to GDP, 1965–2006......Page 90
Figure 2.10 Recent Export Growth among MENA’s Resource-Poor, Labor-Abundant Countries......Page 91
Figure 2.11 Technology Content of Exports: Medium- and High-Technology Exports......Page 92
Figure 2.12 Number of Products Exported......Page 93
Figure 2.14 Proportion of New Products in 2006 Export Basket......Page 95
Figure 2.16 Labor Productivity: MENA Countries and Comparators......Page 97
Figure 3.2 The Firm and Its Investment Climate: Rules and Policies and the Institutions That Implement Them......Page 105
Figure 4.1 Overall, the Business Environment in MENA Countries Looks “Average,” as It Does in Many Fast-Growing Economies......Page 112
Figure 4.3 MENA Tariff Reductions Top Those of All Other Regions, 2000–07......Page 113
Figure 4.6 Reform Episodes and Private Investment Response......Page 116
Figure 4.8 Large Proportions of Investors Complain That the Regulations Are Interpreted Inconsistently and Unpredictably......Page 118
Figure 4.9 Policy and Regulatory Uncertainty Are Leading Constraints to Businesses......Page 120
Figure 4.10 Days Spent in Inspections or Required Meetings with Officials......Page 122
Figure 4.12 Inspections Where an Informal Payment Is Requested or Expected......Page 123
Figure 4.13 Perception of the Corruption Constraint among MENA Firms......Page 124
Figure 4.14 Most MENA Countries Lag behind International Norms in Their Corruption Ranking......Page 125
Figure 4.15 Anticompetitive/Informal Practices......Page 126
Figure 4.17 Revenue Reported by Typical Establishment for Tax Purposes......Page 127
Figure 4.18 The Lasting Influence of the Old Business Elite in MENA: Older Firms......Page 129
Figure 4.19 The Lasting Influence of the Old Business Elite in MENA: Older Entrepreneurs among Younger Populations......Page 130
Figure 4.21 Business Creation and Entry into Export Markets......Page 131
Figure 4.22 Entrepreneurship in MENA and Other Regions......Page 132
Figure 4.24 Competition in Manufacturing......Page 134
Figure 5.3 Banking Sector Penetration Is Low......Page 143
Figure 5.7 Credit Constraints Are Stronger in Countries That Have Reformed Less......Page 146
Figure 5.9 Transparency in Financial Statements Helps to Enter the Credit Market......Page 147
Figure 5.10 MENA’s Nonperforming Loans—Highest in the World......Page 149
Figure 5.11 The Risk of Nonperforming Loans—Higher with State-Owned Banks......Page 150
Figure 5.13 Collateral Legislation and Creditors’ Rights in MENA......Page 155
Figure 5.14 Foreign Ownership of Banks in MENA......Page 157
Figure 6.1 Access to Industrial Land Is Perceived More Often as a Major Constraint to Businesses in MENA Countries......Page 162
Figure 6.2 Ownership Status of Industrial Land in MENA Countries......Page 165
Figure 6.3 Master Developer Requirements to Invest in Industrial Zones......Page 179
Figure 7.1 The Basic Framework: Government Subsidies by Degree of Firm Selectivity......Page 186
Figure 8.1 The Effects of Ruling Party Institutionalization on Private Investment......Page 205
Figure 8.2 Party Institutionalization in MENA and Comparator Countries, 2004......Page 207
Box 2.1 An Emerging Consensus on the Link between Export Diversification and Growth......Page 88
Box 5.1 Bank Bailouts and the Financial Crisis—A Return to Nationalizations or a Temporary Cure?......Page 151
Box 5.2 Credit Rationing and the Availability of Credit Information......Page 154
Box 8.1 The Gulf Cooperation Council: Exception to the Resource Curse?......Page 212
Box 8.2 Oil Rents, Foreign Aid Rents, and the (Dis)Incentives to Institutionalize......Page 214
Box 8.3 The Genesis of Business Elites in Morocco......Page 216
Box 9.1 Cairo’s One-Stop Shop......Page 230
Box 9.2 The Federal Institute of Access to Public Information in Mexico......Page 234