The Private Sector in the Middle

East: Challenges and ICD’s

ContributionBy Khalid Al-Aboodi, CEO, Islamic Corporation for the Development of the Private

Sector (ICD), IDB Group

The Conference on Economic Growth, Government Policies

and the Private Sector

December 3rd, 2013 – Riyadh, Saudi Arabia

A Triple Transition in the Middle East

Today, the region is undergoing a transition on three

fronts:

Political transition

Social transition

Economic transition

However, there are still significant issues associated with

all three transition efforts, particularly with the boosting

the private sector development

Two Key Economic Challenges of the

Middle East

Focusing on economic transition side, the region is

facing with two main challenges, which have

worsened after the Arab Spring:

Unemployment issue

Development of the private sector

Unemployment is the Top Challenge

The unemployment is a structural problem that has persisted in the region

for decades.

The share of the public sector in the economy is relatively higher (20-40%)

and labor regulation is more restrictive compared to other developing

countries.

Unemployment is substantially higher and stagnant among young people

(over 25%).

The region’s female labor force participation rate is only 26%.

The number of new entrants into the labor force is growing rapidly, given

the demographic structure and natural growth rate.

CHALLENGES OF THE PRIVATE SECTOR

IN THE MIDDLE EAST

The Role of the Private Sector in

Development

The private sector is now recognized as a critical driver of economic

development.

Overall, the role of the private sector in development can be

summarized in the following categories:

Promoting economic growth

Providing new job and reducing unemployment

Providing critical goods and services

Paying taxes and supporting government operations

Allocating credit resources efficiently

Current Status of the Private Sector in

the Middle East: Quick Facts

The private sector in the region contributes to 50-70% of the total jobs.

The number of new firms created (total business density) is 1 per 1,000

working-age people, compared to 4 in advanced countries.

There are about 20 million Micro, Small and Medium Enterprises

(MSMEs) in the MENA region of which only 10% operate in the formal

economy.

The average ratio of domestic credit to private sector as a share of GDP is

only 40% for the region, whereas the world average stands at around

120%

Bank loans to SMEs in the MENA region account for about 8% of total

loans in 2011.

There are a number of region-specific challenges of the private

sector:

Low level of SMEs creation

Low level of access to finance

High family-oriented business

Low level economic diversification

Low productivity and lack of innovation

Weak macro-institutions and governance

ICD’S ROLE IN ADDRESSING THE KEY

CHALLENGES OF THE PRIVATE

SECTOR

ICD’s Vision and Mission

MaldivesMalaysia

Pakistan

Indonesia

KSAYemen

UAE Bangladesh

IraqIran

EgyptMauritania

Mali

AlgeriaLibya

Niger

BahrainQatar

KuwaitJordon

Syria

Oman

Tunisia Lebanon

Sudan

SenegalGambia

Gabon

Nigeria Cameroon

Mozambique

Benin

Sierra Leone Ivory

TajikistanKyrgyzstan

KazakhstanUzbekistan

Turkmenistan

AzerbaijanAlbania

UgandaSuriname

ChadDjiboutiGuinea

G. Bissau

Coast

B.Faso

Brunei

PalestineMorocco

Turkey

Established: in 1420H (1999) as an independent entity within the IDB Group.

Vision: is to be a major player in the development and promotion of the private sector as a vehicle for economic

and social growth and prosperity in Islamic countries

Mission: is to complement the role played by IDB through

Providing Islamic financial services and products

Promoting competition and entrepreneurship in member countries

Advising governments and businesses

Encouraging cross border investments

MENA

54%

Central

Asia &

Europe

12%

South

Asia

9%

Sub-

Saharan

and West

Africa

12%

Regional

Projects

9%

Far East

and

Pacific

4%

Regional Distribution of ICD’s

Cumulative approvals since inception Products: The financing & investment

products offered by ICD, provides private

sector firms with access to financial

resources in the form of credit and equity

participation.

Services: ICD also provides a wide variety

of advisory services to governments, and

public and private entities of member

countries in a variety of areas (i.e., project

finance advisory, raising Sukuk and

development of Islamic capital markets)

Approvals: Since inception, ICD has

approved more than $3 Billion worth of

financing to around 300 projects in 36

member countries.

Islamic Financial Channels

Direct Financing Activities

PartnershipEnabling

Environment

•Saudi Arabia & Tunisia SME

Funds

•Palestine Ijara Company

•Mauritania Leasing Company

•Arab Leasing & Investment

Company

•Qatar SME Authority

•Libya SME Development

•Yemen Special Economic Zones

•Saba Islamic Bank

•Islamic Finance Institutions

Program

•Arabio-Equity

•Al-Nouran Sugar Company

•Al Manafea Real Estate

•Jordan Pharmaceutical

Company

•Middle-Income Housing

Development Fund

•Arab Fund

•African Development Fund

•IFC

•OFID.

•Syndications

Corporatization of the Private Sector

Addressing the SMEs challenges by governments and MDBs

Building Know-how and Managerial capacity

Regulatory Environment

Addressing the labor issues