Saturday, September 23

EBRD – European Bank for Reconstruction and Develo : How to deliver growth in Egypt, Jordan, Morocco and Tunisia

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A dynamic private sector capable of sustained job creation is required to move forward, argues Hanan Morsy

By Hanan Morsy, Senior Regional Economist at the EBRD

The economic challenges facing countries such as Egypt, Jordan, Tunisia and Morocco have not merely surfaced in the aftermath of the Arab Awakening. The quest for greater political rights was rooted in socioeconomic factors, brought about by a lack of access to economic opportunities.

In the past twenty years, the benefits of economic growth did not trickle down to wider segments of the population, nor was sufficient employment generated for large and growing populations, especially among the young and educated, with the end result being high and persistent unemployment.  

This was partly due to the uneven implementation of structural market-oriented reforms enacted in the 1980s. These were designed to create legal and institutional frameworks conducive to investment and market-driven growth, and to promote privatisation in the inflated and unproductive public sectors prevalent across the region.

However, an incomplete reform agenda led instead to new bargains being formed between governments and various interest groups, leading to special privileges, monopoly rights, and favourable access to markets, credit, and government services. In fact, during the period of reform, companies connected to the political leadership typically outperformed their rivals.

Effective state institutions were lacking, and the state’s role as regulator, guarantor of competition, and enforcer of contracts was weak. As a result, the region witnessed low competitiveness, innovation, and productivity, as barriers to entry, price-distorting subsidies, and low levels of corporate governance prevailed.

To move forward, the Egypt, Jordan, Tunisia and Morocco need to generate an enabling environment for a dynamic and competitive private sector capable of sustained job creation, and underpinned by a strong regulatory framework.  The EBRD has conducted in-depth research into the key factors hindering private sector development. This was guided by the Bank’s detailed assessment of transition challenges, both at the country- and sector-level, conducted for the first time after its expansion into the region. At the country level, transition indicators capture the degree to which an investment-enabling environment exists, along with the extent of market depth and sustainability.

The results show that these four countries are in “mid transition” between the experiences of Eastern Europe and Caucuses, and Central Asia. While they score reasonably well on some indicators, such as price/trade liberalisation and small-scale privatisation, larger gaps remain in competition policies and institutional capacity, along with the prevalence of market-distorting subsidies.

At the sector level, the analysis examines the underlying market structure and market- supporting institutions and policies, based on publicly available data or observable characteristics of market structure and institutions. Significant gaps remain across corporate, energy, financial, and infrastructure sectors. Reforms need to be accelerated to create a true level playing field, and enhance competitiveness, efficiency and productivity.

The region is currently at a crossroads. While the changing landscapes during the transition provide an opportunity to break with the past and pursue reforms that would not have been feasible under the old regimes, building consensus will be more difficult.

To achieve sustained, broad-based, and inclusive growth, there is an urgent need to move from a “rent seeking” model and privilege-based system to one based on fair competition and equal access to opportunities. Credible structural reforms must rest on an institutional framework that increases the effectiveness and consistency with which public agencies interact with businesses and enforce regulations. Governments must eliminate policy uncertainty and discretionary implementation. And, to be successful, these reforms need to be socially and politically inclusive. Building constituencies for them will be key.

 

 

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