Building a New Investment & Business Environment in the Arab WorldArab Economic Forum, May 2011

Thomas Jacobs, IFCMay 27, 2011

International Finance Corporation

World Bank Group IFC, IBRD, IDA,

MIGA, ICSID Created in 1956 AAA/Aaa rating Invested $13

billion in FY10

IFC MissionTo promote sustainable

private sector investment in developing countries, helping

to reduce poverty and improve people’s lives.

What does IFC do? Invests via loans & equity Mobilizes capital from others Provides Advisory Services

To promote open, competitive markets in emerging markets

To support companies & other private sector partners where there is a gap

To help generate productive jobs & deliver essential services to the underserved

To mobilize other capital that can contribute private enterprise development

Why do we do it?

What’s behind the “Arab Spring”?

17% of population living <$2/day High clustering around poverty line – increases

vulnerability of poor to shocks MENA population growing rapidly 48 million jobs needed over the next decade Voice and accountability worsened over the

last decade in almost all MENA countries Labor skills mismatch causing frustration

among educated youth

Insufficient Voice and Accountability(Lower rank indicates worse score)

High Rates of Unemployment

Access to Finance Lowest in the World

Source: World Bank Governance & Anti-Corruption Indicators

*

Une

mpl

oym

ent r

ate

(%)

% of firms with a loan credit from a financial institution

0

5

10

15

20

25

30

EAP ECA LAC SA MENA MENA (Youth)

MENA (Female)

MENA has the lowest female labor force participation rate in the world

Employment: (the?) Major issue in Arab World

48 million jobs needed over the next 10 years MENA

Jobs will have to come from the private sector

Public agencies and state-owned enterprises cannot create sufficient jobs in a sustainable manner

Private enterprises will only invest and create jobs within a conducive business environment

Investment climate weaker in lower-income countries

Doing Business has been an important catalyst of business environment reforms in the MENA region

Source: Doing Business 2011

Little diversification in Arab economies

….. and MENA exports tend to have a low technological input.

Main Pillars of New Business Environment

All underpinned by an ….Enabling Investment Climate

Efficient Financial MarketsEconomic Integration in the Arab World

And an increasing focus EAST and SOUTH (Asia and Africa)

Growth Employment

1. Promote Competition & Reform Structures

A. Remove the rents• Eliminate barriers to entry; open trade and investment.

• Reduce conflicts of interest between public servants & investors.

• Address competition issues (such as monopolies).

Example: Promote the creation of competition authorities

B. Reform institutions & processes• Increase transparency, accountability, measurability.

• Modernize public sector & cut out red tape.

Example: Improve governance & transparency while simplifying to make it easier for firms to start and operate.

2. Strengthen policy-making & encourage innovation

C. Improve process of policy-making• Establish sustainable and robust process of private sector consultation.

• Streamline decision-making and improve inter-ministerial coordination.

Create public-private dialogues that engage stakeholders in common goal

D. Innovate through knowledge• Support new product development with a higher technological input.

• Harness the Power of the Diaspora for ideas, capital and connections.

• Increase use of ICT in production processes & products/service mix.

Concentrate efforts on knowledge sectors -- ICT, health care, education…

3. Improve climate for PPPs

E. Focus on regulatory framework & education• Infrastructure is a major constraint for most MENA countries

• $100B/year of investment in infrastructure needed to sustain 5% growth.

• Power, transport, education, health care, water, etc.

Create dedicated PPP units and pilot specific transactions

$100B / yr for Infrastructure

needed across MENA

Actual Investment

$60B – 70B per year

GAP

More Private Investments - PPPs

More and BetterPublic Investments

4. Concentrate on MSMEs

Over 95 percent of MENA enterprises are MSME’s – the majority of which are microenterprises – employing less than 5 to 10 workers ……

Size breakdown (% of all MSMEs)

Source: WB MSME Country Indicators

4. Services & Moving up the Value Chain

MENA: Can’t compete with Asia & Africa for high labor content

products. Should focus on products with a higher skill content – and are

produced further up the value chain. ICT and services (education, tourism, health care, etc) offer

considerable scope and potential for further development. Improving technological content of goods produced will also

add value to MENA produced goods.

Deepen regional integration

Intra - Arab integration remains a challenge….

Source: WDI

WBG’s Arab World Initiative: fosters economic integration and knowledge sharing

Re-Focus EAST and SOUTH

Focusing increasingly more on the highest growth region – and the proximate region

with the greatest growth potential.

The new business environment must:

Promote competitionBe more inclusive, esp. for youth & womenLeverage private sector resourcesEnable greater investments in infrastructure Invest in knowledgeFocus on MSMEs

=> CREATE SUSTAINABLE JOBS

شكـرا , Merci, Thank

You