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PRESS RELEASE October 9, 2019

Middle East & North Africa Faces Another Year of Subdued Growth, with Bolder Reforms Needed to Boost Private Sector

New World Bank report provides economic outlook and calls for fairer competition as an engine of inclusive growth

WASHINGTON, October 9, 2019 – Economic growth in the Middle East and North Africa (MENA) region is projected to slow to 0.6% this year compared with 1.2% last year, according to a new World Bank report. The growth forecast for 2019 is revised down by 0.8 percentage points from the April 2019 projection due to lower oil prices since April 2019 and a larger-than expected contraction in Iran. MENA’s economic outlook is subject to substantial downside risks—most notably, intensified global economic headwinds and rising geopolitical tensions.

The latest edition of the MENA Economic Update titled "Reaching New Heights: Promoting Fair Competition in the Middle East and North Africa" discusses the current sluggish growth due to conservative oil production outputs, weak global demand for oil, and a larger-than-expected contraction in Iran. On the other hand, a boost in non-oil activities in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates), most prominently in construction, partially offset the dampening effect on the region’s average growth numbers as a result of Iran’s economic contraction.

Egypt’s Gross Domestic Product (GDP) continues to lead growth in the region as its overall macroeconomic environment has improved following the country’s exchange rate, fiscal, and energy reforms. As a result, Egypt’s economy grew to 5.4% in the first half of 2019, up from 5.2% in 2018.

"Countries in the region have implemented bold reforms to restore macroeconomic stability, but the projected growth rate is a fraction of what is needed to create enough jobs for the fast-growing, working-age population," said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa region. "It is time for courageous and far-sighted leadership to deepen the reforms, to bring down the barriers to competition and to unlock the enormous potential of the region’s 400 million people as a source of collective demand that could drive growth and jobs.

In the medium-term, the World Bank expects real GDP in the MENA region to grow at 2.6% in 2020 and 2.9% in 2021. The projected pickup in growth is largely driven by increasing infrastructure investment in GCC countries and the recovery in Iran’s economy as the effects of current sanctions wane.

However, the report warns that a further escalation in regional tensions could severely weaken Iran’s economy and spill over to other countries in the region. While rising oil prices would benefit many regional oil exporters in the short run, the overall impact would be to hurt regional trade, investment, and spending on infrastructure.

In addition to providing economic growth forecasts for each country, the report highlights how unfair competition results from markets dominated by state-owned enterprises and politically-connected firms which deters private investment, reducing the number of jobs and preventing countless talented young people from prospering.

"The lack of fair competition is holding back the development of the region’s private sector, which history has shown to be the source of broad-based growth and jobs," said Rabah Arezki, World Bank MENA Chief Economist. "Countries in the region have an opportunity to transform their economies by levelling the economic playing field, and creating business environments that encourage risk-taking and reward innovation and higher productivity."

Unleashing regional demand accompanied by arm’s length regulation that fosters competition and fights anti-competitive practices could prevent the perpetuation of oligarchies—the powerful few who often seize control of liberalization attempts, with the unfortunate result that the idea of reform is sullied among the citizens. The report calls for strengthening competition laws and enforcement agencies. It also calls for more efficient management leading to potential corporatizing of state-owned enterprises, promoting the private sector, and setting up watchdogs to rebalance contestability between them.


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