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The points you raise about mistrust of government are crucial, and lack of government credibility can undermine the impact of even the best intentioned reforms. The 2009 MENA PSD Flagship Report ("From Privilege to Competition") finds: "[D]iscretion and favoritism can weaken the public institutions that implement private sector policies and the credibility of government commitments to reform. Both hurt the expectations of investors and limit investment, competition, and innovation. The challenge for the governments is to implement policies that give clear signals to investors and strengthen their credibility as they work to level the playing field for all investors." Further: "The credibility of governments and the signals they send to firms are central to entrepreneurs’ investment decisions. The current rules and policies and how they are implemented matter for firms, but anticipation about how these will evolve in the future are also crucial to assess the expected risks and returns of investments."
Finally, it is important to understand that mistrust runs both ways: "Almost 60 percent of public officials interviewed across the [MENA]region thought the private sector in their countries was rent seeking and corrupt. Only 21 percent claimed it is dynamic, and 9 percent thought it was transparent and law abiding. The distrust is reciprocal. It is rooted in the belief by officials that a small group of rent-seeking firms dominate the private sector—a group that has long been protected by all sorts of barriers to entry. Among the negative behaviors cited are the bribing of civil servants, lobbying for special benefits and tax exemptions, hiding of revenues and salaries to avoid tax obligations, and nontransparent corporate governance. On the private sector’s side, it is also rooted in the belief that governments do not act to improve the investment climate for all businesses, but rather for the benefits of politicians and a narrow group of their allies."