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Middle East and North Africa

Lessons from Five Years of Helping Governments Foster Incentives Transparency

Harald Jedlicka's picture

Global competition to attract foreign and domestic direct investment is so high that nearly all countries offer incentives (such as tax holidays, customs duty exemptions and subsidized loans) to lure in investors. In the European Union, the 28 member states spent 93.5 billion euros on non-crisis State Aid to businesses in 2014. In the United States, local governments provided and average of US$80.4 billion in incentives each year from 2007 to 2012.

In order to better understand the prevalence of incentives worldwide, the Investment Climate team in the Trade & Competitiveness Global Practice of the World Bank Group reviewed the incentives policy of 137 countries. Results showed that all of the countries that were surveyed provide incentives, either as tax or customs-duty exemptions or in other forms. Table 1 (below) shows the rate at which these instruments are used across advanced and emerging economies. For instance, tax holidays are least common in OECD countries and are most prevalent in developing economies. In some regions they are the most-used incentive.[1]





However, despite offering incentives, few countries meet all the requirements of a fully transparent incentives policy. These include: mandating by law, and maintaining in practice, a database and inventory of incentives available to investors; listing in the inventory all aspects of key relevance to stakeholders (such as the specific incentive provided, the eligibility criteria, the awarding and administration process, the legal reference and the awarded amounts); making the inventory publicly available in a user-friendly format; requiring by law the publication of all formal references of incentives; and making the incentives easily accessible to stakeholders in practice. A T&C study now under way on incentives transparency in the Middle East and North Africa (MENA) region showed that none of the eight countries analyzed has a fully transparent incentives policy. (See Graph 1, below.)




More bank competition in Gulf countries could be a boon for small businesses

Pietro Calice's picture


Against the backdrop of low oil and gas prices and fiscal consolidation, economic diversification and private sector development is a top policy priority for the countries of the Gulf Cooperation Council (GCC).

 
Supporting small- and medium-sized enterprises (SMEs) is central to this agenda.
 
Formal SMEs in GCC countries account for 25% of jobs, which is significantly below the global average where SMEs account for 40% of employment.

Inadequate access to finance, especially bank lending, is constraining SMEs in GCC countries. Only 11% of SMEs have access to credit and some 40% of SMEs cite a lack of financial access as a major constraint.
 

Bank competition in the GCC is among the lowest in the world. Strict entry requirements, restrictions on bank activities, relatively weak credit information systems, and a lack of competition from foreign banks and nonbank financial institutions all contribute to weak competition in the banking sector.
 
By conducting fieldwork and reviewing available literature, we have analyzed what rules and regulations may be impeding bank competition in the GCC SME lending markets as well as the institutional framework for competition policy underpinning those rules and regulations.

Banking consolidation in the GCC requires attention to competition

Pietro Calice's picture
Also available in: Arabic | French
National Bank of Abu Dhabi - Ijanderson977 (Own work) [Public domain], via Wikimedia Commons
National Bank of Abu Dhabi, UAE. Photo: Wikimedia Commons

Gulf banking markets may have entered an important phase of consolidation, with the potential to dramatically reshape both the role and the intermediation capacity of the industry. A few days ago, two large banks in the UAE, National Bank of Abu Dhabi and First Gulf Bank, agreed on a tie-up to create a national champion and regional powerhouse with $170 billion in total assets. In Oman, Bank Sohar and Bank Dhofar are in advanced merger talks. Bank mergers are expected to take place in Bahrain and Qatar as well.

The protracted downward trend in oil prices is threatening economic growth and fiscal sustainability in the region. This is having an impact on the banking systems. Banks are increasingly facing pressure on liquidity in the face of both private and public deposit outflows. This coupled with a low interest rate environment in the context of pegged currencies is eroding margins. Capital buffers are strong yet asset quality may deteriorate if oil prices remain low for a prolonged period and economic growth decelerates further. Therefore, in a context largely characterized by fragmented markets, consolidation may help achieve efficiency gains and ultimately preserve financial stability.

However, it is important that banking consolidation in the Gulf does not come at the detriment of competition. International experience shows that healthy bank competition generally promotes access to finance and improves the efficiency of financial intermediation, without necessarily eroding the stability of the banking system. Bank competition in the region is traditionally weak largely due to strict entry requirements, restrictions to bank activities, relatively weak credit information systems, and lack of competition from foreign banks and nonbank financial institutions. While increased market concentration does not necessarily imply greater market power, there is a risk that the current and prospective wave of industry consolidation may have long-lasting negative effects on competition if left unchecked.

Unlocking innovation in the Middle East through financial inclusion

Simon Bell's picture


I recently attended an SME Conference in Jordan around SME Finance and Employment – extremely important issues in a troubled region.  All participants agree that much more needs to be done to address the lack of jobs in the region and to increase financial access at all levels, to individuals, households and small and medium scale enterprises (SMEs).

The Middle East remains the most financially excluded region in the world despite being a middle income region.

Only 4% of unbanked adults in the Middle East say that they don’t have an account because they don't need one. In other words, it is clear there is widespread unmet demand for financial services.

A person living in the Middle East is less likely to have a bank account than is a low-income person living in Africa or South Asia, and significantly less likely than a person living in Latin America, Eastern Europe or East Asia from comparable middle income country or region. This poses a dilemma – why?

Celebrating women entrepreneurs on International Women's Day

Cecile Fruman's picture
WomenX – Taking It To Scale – Women At The Helm


It takes a special type of woman to be an entrepreneur.

I didn’t quite know what to expect when, earlier this year, I met with a group of women entrepreneurs in Karachi who are participating in the World Bank Group’s womenX program. I had read a lot about the low numbers of women running businesses in Pakistan, the challenging environment they operate in, and their many constraints. But I was struck by the positivity and drive of the women I met. They shared with me how they are improving their business and financial practices, building their confidence, and expanding their networks.

Take for instance, Mussarat Ishaq, who runs Al-Karam Packages. Mussarat was a Karachi-based housewife, pregnant with her third child, when her husband divorced her. With no work experience, little education, no money and no plan, she learned the ropes of polythene production and with a business partner, started out small – purchasing the raw material from local markets, using outdated machinery to produce plastic bags, and supplying them to small businesses in their area. Today, they have purchased more sophisticated equipment and they employ 250 employees, working to provide low-cost, high-quality, reusable and environment-friendly packaging materials to Pakistani clients.

Tangier, Morocco: Success on the Strait of Gibraltar

Z. Joe Kulenovic's picture
 
 Z. Joe Kulenovic
Modern factories, seaport terminals, and technical schools, plus priceless cultural monuments: Tangier, Morocco

In late 2014, the World Bank’s Competitive Cities team visited the Moroccan city of Tangier, to carry out a case study of how a city in the Middle East & North Africa Region managed to achieve stellar economic growth and create jobs for its rising population, especially given that it is not endowed with oil or natural gas reserves like many others in the region.
 
In just over a decade, this ancient port city went from dormant to dominant. Between 2005 and 2012, for example, Tangier created new jobs three times as fast as Morocco as a whole (employment growth averaged 2.7% and 0.9% per year, respectively), while also outpacing national GDP growth by about a tenth. Today, the city and its surrounding region of Tanger-Tétouan is a booming commercial gateway and manufacturing hub, with one of Africa’s largest seaports and automotive factories, producing some 400,000 vehicles per year (with Moroccan-made content at approximately 35-40%, and a target to increase that share to 60% in the next few years). The metropolitan area now boasts multiple free trade zones and industrial parks, while also thriving as a tourist destination. As in our previous city case studies, we wanted to know what (and who) drove this transformation, and how exactly it was achieved.

Islamic Finance Grabs Headlines in London and Istanbul

Abayomi Alawode's picture



Talk about timing! This week has seen back-to-back initiatives that underscore the growing importance of Islamic finance – and the significant role that the World Bank Group can play in unleashing its potential for financing international development.

This Tuesday, October 29, Prime Minister David Cameron of the United Kingdom announced that the U.K. will become the first non-Muslim country to issue a Sukuk or Islamic bond, with a £200 million issue planned for early 2014. Cameron also announced plans for a new Islamic index on the London Stock Exchange. These initiatives are all part of a grand plan by the U.K. government to turn London into a global capital of Islamic finance.

The very next day, on Wednesday, October 30, World Bank Group President Jim Kim inaugurated the World Bank Global Islamic Finance Center in Istanbul. Envisioned as a knowledge hub for developing Islamic finance globally, the center will conduct research and training as well as provide technical assistance and advisory services to World Bank Group client countries interested in developing Islamic financial institutions and markets.

How to increase investment in the Middle East and North Africa

The importance of investment promotion: FDI in Middle East and North Africa countries like Morocco could help create jobs for its citizens.

In light of recent political and social unrest in the region, foreign investors are taking a “wait-and-see” attitude to projects in the Middle East and North Africa. For the region’s investment promoters, this demands better, more proactive performance than in the past. Fortunately, although much remains to be done, the investment agencies of the 19 MENA governments are, as a group, off to a good start, according to a World Bank Group report released today.

Global Investment Promotion Best Practices 2012: Seizing the Potential for Better Investment Facilitation in the MENA Region reports on the ability of investment-promoting institutions (IPIs) in 189 countries to handle investor inquiries and provide investors with quality business information through their Web sites. It shows that the MENA region was the only one in the world to achieve significant improvement since the last edition of GIPB in 2009, with the IPIs of Morocco and Yemen among the world's three most improved.

“A man needs one handshake, a woman needs 7 points of contact”

Angela Bekkers's picture

Credit; European Union/EDDThe social and economic challenges of the Middle East and Northern African (MENA) region are all very well-known: the region has the world’s highest general unemployment rate (10 per cent – versus a global average 6 per cent) and the lowest female labor participation (26 per cent in the MENA region versus 52 per cent on average in the rest of the world). But recently, there are signs that this is changing.

Take for example last month’s ‘pitching contest’ by young entrepreneurs at the ArabNet conference in Lebanon, where 40% of the pitches came from women – a much higher percentage than is typical at similar conferences in Europe. And there are testimonies by female entrepreneurs like May Habib, founder of the Dubai-based Arabic translation service Qordoba.com which uses a lot of freelance female workers in the region. She mentioned in a recent interview that the internet has transformed women's opportunities. "More flexible work options, freelance, home-based work, low capital requirements; you can see why starting a company on a small scale is a much more viable thing for women to do than get a corporate job”.

Women in tech drive change in the Middle East

Please watch Women Entrepreneurship to Reshape the Economy through Innovation in MENA, at the European Development Days live on Tuesday October 16 at 11:00 AM cet

Across the developing world, women business owners are far more prevalent at the informal and micro-scale than growth oriented small and medium sized enterprises.  Women still face an uneven playing field in education, employment, earnings, and decision-making power.Women tech entrepreneurs have the potential to change the face of the MENA economy. (Credit: moderntime, Flickr Creative Commons)

The Middle East and Northern African (MENA) region faces its own particular set of challenges.  In the aftermath of the Arab Spring, the development of strong economies and opportunities for both men and women to pursue a livelihood without barriers is integral to the future of the region.  There is an enormous enterprise and job creation agenda to be fulfilled in the Middle East. A recent study by the OECD notes that today, only 27% of women in the region join the labor force, compared to 51% in other low, middle and high-income economies, and only 11% are self-employed, against 22% of men.

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