Middle East economies, private sector "have room to grow"

By Nehal El-Sherif, dpa

   Cairo (dpa) – Almost three years after the Arab world's uprisings began, different countries continue to be dogged by the same economic problems that prompted youth to revolt against their governments.

   The biggest challenge remains job creation. In 2012, unemployment stood around 25 per cent in the Middle East and North Africa (MENA), exceeding any other region in the world.

   To solve the problem, Arab states need to start providing incentives for the private sector, according to Mouayed Makhlouf, the regional director of the International Finance Corporation (IFC).

   “If a government needs to promote economic growth, this has to be done with the private investors; the government cannot do it alone," Makhlouf told dpa.

   IFC, the World Bank's private sector arm, sees small and medium-scale enterprises (SMEs) as one of the key solutions to push growth and create jobs in the region. Yet, the sector continues to face many challenges even after the 2011 revolts, Makhlouf said.

   “The gap is still there, if anything changed over the past few years is that (SMEs have) become on the forefront of the governments' agendas,” Makhlouf said. "They realized that in order to create the jobs needed, they need to work around SMEs. And to do that, they need to provide them with financing."

   But “the need is still huge,” he adds.

   As access to financial services for SMEs remains constrained,
Makhlouf said IFC has been investing as well as advising banks to build the know-how to finance small investors in several countries, including Egypt, Saudi Arabia and Lebanon.

   “We need to have bankers realize that SMEs lending is a profitable business," he said.

   According to the International Monetary Fund's (IMF) latest report, the overall economic outlook for oil-exporting countries is favourable. The non-oil sectors in these states, a better measure for economic activity and jobs, boasted a healthy 3.5 per cent growth this year.

   However, for oil-importing countries – which mostly suffer from a high rate of unemployment and post-uprising expectation for improving living standards - the outlook was not as good as needed to face these problems.

   The IMF said governments should take immediate measures, such as reforming the business climate and creating infrastructure, to help the private sector pick up as confidence and political certainty are restored.

   Makhlouf echoed the advice for Egypt, saying the government should introduce more transparency and provide an investment-friendly environment.

   "When you put the right parameters to set up businesses, trust me they will come. They have come before and will probably come again."

   While the unrest drove many investors away or hindered new projects, private sector investments from the oil-rich Gulf states could help their less fortunate neighbours as they face ongoing social and political turmoil

   “Definitely, they can help; they have the money, the capacity and the know-how in certain areas. They can take their business to growing countries in MENA,” said Makhloud.

   “Many investors form the (Gulf) have reached a certain size and capacity where it allows them to expand beyond the local market. I have seen it in retail, cement, hotels,” he said. “They are sophisticated investors, they look at what is happening in MENA and beyond. They have done that very well in the region."

   IFC has facilitated around 5.3 billion dollars worth of such investments and trade since 2003 through its South-South investment programme, to support investors and directing funds into sectors, which traditional foreign investors tend to avoid.

   The corporation committed some three billion dollars in MENA during the 2013 fiscal year, including 914 million mobilized from other investors.

   “This is a strategy that we have been building in a while to link Gulf investors with less developed MENA,” said Makhlouf.

   While local political transitions and global economic problems continue to restrict investments in the region, Makhlouf sees untapped opportunities in many sectors.

   "MENA is still completely underdeveloped and needs a lot of investment in many areas ... There is a room for us to grow."