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Competition, not Privilege, Needed to Increase Private Investment and Job creation in the Middle East and North Africa

November 9, 2009

November 2009 – According to the new report released by the World Bank’s Middle East and North Africa (MENA) region, From Privilege to Competition: Unlocking Private-Led Growth in the Middle-East and North Africa, sustained growth in MENA will require more private investment, higher productivity of firms, and greater diversification. To improve private sector performance, MENA countries need to engage in a reform agenda that will reduce discretionary rule implementation and foster competition.

Reforms implemented over the past two decades allowed private enterprises to become the principal source of wealth generated in MENA economies outside hydrocarbons and mining sector. However, the impact of these reforms is limited 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 percent of business managers surveyed do not think that the rules and regulations are applied consistently and predictably.

Countries in the region need to reduce discretion in the business environment to encourage more entrepreneurs to invest. Engaging in a reform agenda that signals a credible commitment to reduce discretion will require a change in the way policy making is conducted. With the necessary regulatory environment, governments can encourage entry in all sectors of the economy by removing formal and informal barriers to competition.

The 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.

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. A more open dialogue between governments and the private sector will also help guard against narrow interests taking over the public interest.