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Obstacles to business in Middle East and North Africa: instability, corruption, informal sector

By Nibal Zgheib

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Obstacles to business in Middle East and North Africa: instability, corruption, informal sector

New enterprise survey of managers in Jordan, Egypt, Morocco and Tunisia

A new survey of the business environment in the Middle East and North Africa (MENA) region shows that political instability, corruption and competitors’ practices in the informal sector are the most significant constraints faced by companies.

A similar survey was published earlier this year covering other countries in which the EBRD invests, where the top obstacles were somewhat different: competitors’ practices in the informal sector were in first place, followed by limited access to credit and expensive or unreliable electricity supply.

Helena Schweiger, EBRD Senior Economist, presents new analysis of the Business Environment and Enterprise Performance Survey explaining the ways of overcoming obstacles to business in the SEMED region where the European Bank for Reconstruction and Development invests.

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The MENA survey, conducted by the EBRD, the World Bank Group and the EIB in SEMED as well as in Djibouti, Israel, Lebanon, West Bank and Gaza and Yemen, is based on interviews with more than 6,500 randomly selected firm managers from a range of countries in the region.

The EBRD’s analysis focuses on the four countries where the Bank works in the EBRD’s southern and eastern Mediterranean (SEMED) region: Jordan, Egypt, Morocco and Tunisia.

Political instability was among the top five concerns in all four countries, and was the biggest concern in Egypt and Tunisia.

Firms in Egypt and Morocco considered corruption to be the second biggest obstacle, with firms in Jordan and Tunisia putting it in fourth place. The report noted that corruption was one of the factors that had led to the Arab uprisings.

Firms in three out of four countries considered competitors’ practices in the informal sector to be among the top three obstacles. Only in Jordan were they in ninth place.

The informal sector had grown out of increasingly complex bureaucratic systems coupled with unclear rules of enforcement and insufficient legal protection, the report said.

The survey revealed variations in the obstacles to business depending on the type of enterprise.

Young firms – those that have been in operation less than five years – were most constrained by access to land, corruption and electricity issues, rather than political instability and competitors’ practices in the informal sector, although there were of course differences across countries.  

Large firms – those with at least 100 employees – were most concerned about corruption, political instability and limited access to finance.  

The report added that all countries in this region faced security challenges due to the spread of extremism and as a result of spillovers of regional turmoil and external shocks.

An inadequately educated workforce was among the top three obstacles in Morocco and Tunisia, it said.

The EBRD analysis is an important guide to helping countries to stimulate growth by overcoming obstacles to investment.

The report says: “In the wake of the global financial crisis and the Arab uprising, governments in the SEMED countries are searching for ways to resuscitate economic growth. One course of action is to create a more conducive business environment, which can boost growth by establishing more competitive and fair conditions for all businesses.”

Since the EBRD was asked by the international community to start working in these four countries, the Bank has invested over €2 billion into various sectors in their economies.

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