The World Bank reported yesterday that better quality investments are needed in the Middle East and North Africa (MENA) region in order to boost shared growth. A long period of political instability has affected both the quality and quantity of investments, skewing them towards activities that create the least jobs, it added. The conclusion was made in the Bank’s latest Economic Developments and Prospects report entitled “MENA: Investing in Turbulent Times” which said that ongoing political turmoil in 2013 has weighed down economic activity in the region leading to an average growth for the region of 2.8 percent – half of the 2012 estimated 5.6 percent. For oil-exporting countries such as Libya, the pace of economic expansion is slowing considerably due to unfavorable developments. “Developing countries in the region can’t afford to continue neglecting long-standing economic impediments”, said Shanta Devarajan, World Bank Chief Economist for the MENA region. “The absence of significant economic reforms, combined with political and macroeconomic instability, especially in the transition economies, will keep investment and growth below potential not only in the short run, but in the years to come, unless there are remedies.” The report also revealed that after the ‘Arab Spring’ Foreign Direct Investment (FDI) flows to MENA fell as economic and political conditions worsened. It reveals that political turbulence has affected the level and composition FDI, and has skewed flows towards extractive sectors, such as oil, that create the least jobs. At the same time it has discouraged the high quality FDI in labour-intensive manufacturing and services. “By discouraging efficiency-seeking investments, shocks to political stability exacerbate the concentration of FDI in the extractive industries (such as oil) and non-tradable sectors and worsen a problem associated with policy distortions and political capture that predate the Arab Spring, said Elena Ianchovichina, World Bank MENA Lead Economist and principal author of the report. The report outlines several policy priorities and challenges for the region. It cautions that MENA countries might find themselves in a resource trap unless they strengthen institutions and improve the investment climate, especially political and macroeconomic stability. “Protecting rule of law and property law and poverty rights and committing to stable and transparent policies are key to job creation and structural transformation in MENA, said Devarajan. Other priorities listed in the report were reforms that addressed long-standing challenges including distortionary and unevenly enforced regulations, favouring of privileged businesses, expensive subsidies, inadequate and irregular provision of infrastructure services, education quality and skills, and poor functioning markets.
