A World Bank report said on Wednesday that the MENA region is expected to achieve growth of 4.1% this year and 3.85% in 2012. The World Bank added another 0.5% to its previously published forecast for 2011 earlier in May. This is primarily due to, “more expansionary fiscal policies in the region, expanded oil production (excluding Libya), better than expected growth in Iran, and a quicker than anticipated pickup in industrial production in Egypt”.
However, these variables are expected to be reversed in 2012 with oil demand expected to shrink as global growth contracts resulting in a 0.5% decline in growth rate, the report added.In addition to global economic uncertainty, the current pro-democracy wave poses vast financial, economic and social challenges and setbacks, the World Bank said.
Declining oil prices in 2012 will have a major toll on the region’s budgets which are heavily burdened by answering pressing social demands and expanding expenditures on infrastructure. The study stresses good governance as one of the key areas these countries should concentrate on; to bring in more investment which in turn would stimulate growth. “Indeed, if we look at examples from other countries undergoing transition, investment surged in many economies that made early moves to improve governance,” said Caroline Freund, chief economist for the Middle East and North Africa region at the World Bank.
“Overall, while improving government institutions is necessary for voice and accountability, it is also necessary for growth and the efficient use of resources.” She further said that transparency and accountability are critical to attract investments and stimulate growth.
The report added that the MENA region has been stronger in the area of investment than South America and Eastern Europe. Countries like Morocco and Egypt have been more successful in attracting investments than other Arab states, particularly oil-exporting countries.
“When governance is good, public investments support private investment by providing the energy, roads, logistics and communications links necessary for firms to function productively,” said Freund.
“But with poor governance, public investment is more likely to crowd out private investment by using resources that would otherwise be used by the private sector,” she added.
“Services and manufacturing are where the action is,” said Elena Ianchovichina, lead economist in the MENA region and principal author of the report. “Services have been a source of strength for both income and jobs, in levels and growth, especially in the oil importing countries. Manufacturing has also contributed to growth in income and jobs, but in the MENA region, the sector is small relative to the manufacturing sectors in Brazil, Indonesia, Malaysia and Turkey.” (Source: www.yallafinance.com)
