Economies in the Middle East and North Africa are set to see growth of 4.1 percent this year and 3.8 percent in 2012, a World Bank report said on Wednesday.
With the strong caveat that global uncertainty is clouding the horizon, the forecast for 2011 is up by half a percentage point relative to the May 2011 forecast.
The report said the increase was due to "more expansionary fiscal policies in the region, expanded oil production (excluding Libya), better than expected growth in Iran, and a quicker than anticipated pickup in industrial production in Egypt".
Growth is expected to decline by half a percentage point in 2012 because of lower expected oil prices and slower global growth, the report added.
Unlike in 2008, when MENA countries were in a strong position to weather the storm, the ongoing political and economic uncertainties have put a number of countries in a weaker position for additional response to another global downturn, the World Bank said.
With contracting global demand, lower oil prices will put further pressure on fiscal balances in many developing oil exporters, especially in a period of expanded government spending, it added.
The study also highlighted the important links between good governance on a level legal and regulatory playing field, and the ability of investment to stimulate growth.
“Indeed, if we look at examples from other countries undergoing transition, investment surged in many economies that made early moves to improve governance,” said Caroline Freund, chief economist for the Middle East and North Africa region at the World Bank.
“Overall, while improving government institutions is necessary for voice and accountability, it is also necessary for growth and efficient use of resources.”
To revive investment above and beyond pre-Arab-Spring levels, a move to transparency and accountability is urgent, she said.
The report noted that investment in the MENA region has been strong over the last two decades in comparison with Latin America and Eastern Europe.
However, in the oil exporting countries, such as Algeria and Oman, it has been primarily supported by large and expanding public investment. Oil importers, in contrast, like Egypt and Morocco, have shown more strength in private investment, which has increased in recent years.
“When governance is good, public investments crowd in private investment by providing the energy, roads, logistics and communications links necessary for firms to function productively,” said Freund.
“But with poor governance, public investment is more likely to crowd out private investment by using resources that would otherwise be used by the private sector,” she added.
The report also makes a strong case for private investment in services and manufacturing as engines of job creation and income growth in the region.
It presents evidence that while the majority share of foreign direct investment (FDI) received by the region flows into the real estate and fuel sectors, most FDI-related jobs are in fact generated in the manufacturing sector.
“Services and manufacturing are where the action is,” said Elena Ianchovichina, lead economist in the MENA region and principal author of the report. “Services have been a source of strength for both income and jobs, in levels and growth, especially in the oil importing countries.
"Manufacturing has also contributed to growth in income and jobs, but in MENA the sector is small relative to the manufacturing sectors in Brazil, Indonesia, Malaysia and Turkey, for instance.”For all the latest business news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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