The MENA's perplexing economic pie
The interest was there before the events of the Arab Spring and only intensified with the revolutions of 2011. But inclusive growth has eluded the countries of the MENA region. Why? A comparison of the experience of economies successful in achieving inclusive growth during past decades with the situation in MENA points to some areas MENA could address to reverse the fate of the last three decades.
The Growth Commission report identifies and reviews the experience of 13 economies which achieved inclusive growth, defined as high and sustained economic growth that leads to poverty reduction by lifting wages and creating jobs for millions of people. Although dominated by East Asia, the sample is diverse as it includes economies from around the world, some resource rich and some not. Only one of these economies – Oman – is located in the MENA region. Successful economies grew their average per capita incomes by 5 percent or more for a period of at least 30 years, reduced unemployment, and improved job quality. The average pace of MENA’s economic growth during a similar span of time pales by comparison. The latter grew their average per capita incomes by slightly less than 3 percent during the period 1969-2008. Notably, the region’s unemployment rate has been much higher than the rates in successful economies and good quality jobs in MENA’s private sector have been scarce.
By contrast, trade played a relatively small role in MENA’s economic growth story. Non-oil export performance varied greatly across the region. Macroeconomic volatility and imbalances were a problem, in some countries more than others. Policy distortions prevented the efficient allocation of resources. Energy subsidies, in particular, biased production towards capital-intensive industries, while labor market distortions discouraged entry into the private sector and acquisition of skills demanded by the market. Rent seeking discouraged competition and technology upgrading, and access to finance was limited, especially for Small and Medium Enterprises. Governments chose to redistribute instead of creating conditions for inclusive growth and development. Redistribution occurred via subsidies, government sector employment and public investment. Importantly, institutions remained relatively weak with regulations applied in an uneven and preferential way. Weak rule of law discouraged private investment which remained relatively low and lowered the efficiency of public investment.
(© 2013 The World Bank Group)