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Middle East and North Africa - Economic developments and prospects 2013 : investing in turbulent times, Volume 1
Author:Ianchovichina, Elena; Burger, Martijn; Country:Middle East and North Africa;
Date Stored:2014/01/24Document Date:2013/10/01
Document Type:PublicationSubTopics:Environmental Economics & Policies; Access to Finance; Currencies and Exchange Rates; Emerging Markets; Debt Markets
Region:Middle East and North AfricaReport Number:84175
Volume No:1  

Summary: The political and social upheavals that followed the Arab Spring of 2011 continue to dominate economic activity and near term prospects in the Middle East and North Africa (MENA). The absence of significant economic reforms, combined with persistent political and macroeconomic instability, is likely to keep investment and growth below potential in developing MENA not only in the short run, but in coming years, unless there is a break with past practices. This report shows that political turbulence since the early 2000s has affected not only the level of foreign direct investment (FDI) in MENA, but also its composition; it has skewed it towards activities that create the least jobs or that create jobs in non-tradable. At the same time, it has discouraged the high quality FDI in non-resource tradable manufacturing and services needed for export upgrading and diversification. By hurting these efficiency-seeking investments, shocks to political stability exacerbate the clustering of FDI in the extractive industries and non-tradable sectors - a problem associated with policy distortions and political capture that predate the Arab Spring. The findings of the report outline several policy challenges and priorities. The report argues that MENA countries may find themselves in a resource trap unless they strengthen institutions and improve the investment climate, especially political and macroeconomic stability. Protecting the rule of law and property rights, and committing to stable and transparent policies will encourage investment, especially foreign investment in the labor-intensive non-oil manufacturing and service sectors of MENA, and thus create job, growth, and structural transformation.

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