Middle East and North Africa
“What can we do today to prepare students for the labor force in 20 years?” the director general of Israel’s Ministry of Finance, Shai Babad, asked. At an Annual Meetings event last Friday, Babad was asked for his thoughts about successful government policies to enable start-up ecosystems. However, he answered the question with one of the many questions that policymakers continue to wrestle with in the new digital economy.
In recent years, many of the World Bank Group’s country partners have posed similar questions. As Trade & Competitiveness Director Klaus Tilmes commented, “Many clients are now less interested in our money, and more in our knowledge around best practices and effective incubator models. They’re asking ‘How can we create our own start-up ecosystems?’ So we are trying to become more systematic and leverage tools to expand our programs and build them into our lending projects.”
No state is more renowned for its success in building such ecosystems than Israel. The small country contains the highest number of start-ups outside of Silicon Valley and receives the most VC investment per capita. With a population of only 8 million, Israel has over 6,000 start-ups, and 1,000 new start-ups are launched every year. In 2016 alone, Israeli start-ups raised over $4.8 billion.
A World Bank Group team set out to answer the questions: Who are Moroccan green entrepreneurs, and what is the entrepreneurial landscape they operate in? They found that:
Almost half of surveyed Moroccan green entrepreneur businesses are solo-run.
84 percent of surveyed entrepreneurs were self-funded at the early-stages.
54 percent of entrepreneurs identified a lack of access to market information as the biggest barrier to doing business in Morocco.
Those are just a few findings from their work on the first World Bank Group climate entrepreneurship ecosystem diagnostic in Morocco, a deep dive into the North African nation’s green start-up ecosystem.
The diagnostic, surveying more than 300 entrepreneurs and industry players, shines unprecedented insight into multiple facets of Morocco’s climate entrepreneurship ecosystem, and how different political, financial, and cultural forces play out to drive the sector.
In a highly visual format, a new report explores the top findings from the diagnostic, bolstering them with case studies, key facts, and graphics. The report uncovers interesting clues to Morocco’s strengths and challenges: Typical Moroccan green entrepreneurs are young, educated, and started their businesses because they wanted to be their own boss. These entrepreneurs work in diverse sectors — from green information technology to energy efficiency — and are creating and adapting technologies and solutions to solve some of Morocco’s greatest environmental challenges.
Dar es Salaam, Tanzania – one of the many cities in Africa that is expected to see sharp population increases – will need rapid job creation to keep pace with its swift population growth. The city’s new bus transit system – completed in 2015, with a $290 million credit from the International Development Association, the World Bank’s fund for the poorest countries – is now reducing transportation costs, easing traffic and promoting private sector development.
Photo: Hendri Lombard / World Bank
Africa’s working-age population is expected to grow by close to 70 percent, or by approximately 450 million people, between 2015 and 2035. Countries that are able to enact policies conducive to job creation are likely to reap significant benefits from this rapid population growth, according to the Africa Competitiveness Report 2017, co-produced by the World Bank Group, the African Development Bank, and the World Economic Forum. The report also warns that countries which fail to implement such policies are likely to suffer demographic vulnerabilities resulting from large numbers of unemployed and underemployed youth.
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.
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.)
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).
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.
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.
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).
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?
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.
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.