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OECD View - MENA Opportunities

Global Arab Network - The Middle East Association

Monday, 13 July 2009 15:23

Can the economic crisis be an opportunity to create new dynamics for Middle East and North African business climate reform? Over the past decade, thanks to a wave of structural and regulatory reforms, Middle East and North African (MENA) economies have benefited from a surge of FDI (Foreign Direct Investment) inflows. However, amid the current economic crisis, data indicates that dwindling sources of revenue in OECD (Organisation for Economic Co-operation and Development) economies will result in a marked decrease of FDI inflows to the region. With emerging markets worldwide competing vigorously to attract inward investment, MENA economies face even stronger pressures to offer investment-friendly business and regulatory environments to offset the potential threats posed by the global economic crisis.

So far, there has been limited direct impact of the crisis on the region. Yet, looming contagion and spill-over effects could potentially undermine economic performance in the region. Despite the strong macroeconomic foundations laid by oil-rich countries, capital-intensive infrastructure projects are at risk as investors react to changing market factors. Fluctuations in oil prices will also mean lower portfolio and direct investment, negatively impacting real estate and industrial development plans, both in oil-rich and resource-poor countries. For energy-importing countries, such as Egypt, Jordan and Morocco, increasing risk perception by international investors, slowdowns of exports to Europe and the US, coupled with higher government budget deficits, are posing a threat to sustaining high levels of economic growth. These challenges and the risks of rising unemployment could eclipse the past achievements.

Where now?
The crisis could lead governments to move away from previous and ongoing reform efforts in view of the increasing share of wealth held by the private sector. In times of macroeconomic instability, governments could be enticed to slow down further integration into the global economy and to revert back to protectionist policies of the past. To do so would be a costly mistake, as the private sector plays a key role in economic development and creating employment opportunities for a young and expanding labour force.

Creating an enabling environment for business has long been acknowledged as an important pre-requisite to dynamic growth. Over the last years, MENA economies have made progress towards diversifying their economies to achieve sustainable growth, the single most important determinant for attracting investment.

Reforms on tax, corporate governance, investment regulation and financial markets have enhanced the business climate in the region. OECD standards on good corporate governance, for instance, are being enforced throughout the region as a means to boost transparency of MENA-based companies and to attract private investors. In the face of current global challenges, now more than ever, channels for regional dialogue on pressing economic policy reforms should remain open. The MENA-OECD Investment Programme remains a partner to governments in the region to facilitate this regional dialogue and share OECD good practice to support country-specific reforms.

Global Arab Network

Caroline Giffon-Wee, MENA-OECD Investment Programme.

This article was first published in Business Focus (Issue 2, 2009), a Middle East Association publication produced by Newsdesk Media Ltd.

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Last Updated on Monday, 22 February 2010 14:50

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Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network