The state of MENA
In an exclusive interview on the sidelines of the World Government Summit 2017, Nabilah Annuar sat down with Dimitris Tsitsiragos, Vice President for New Business at the International Finance Corporation to discuss perception and realities of this region's economies
How would you describe the business and financial landscape in MENA?
This is a region that has gone through a lot of turmoil in the last five years. Geopolitical risks and perception of risks remain high in the region. Foreign direct investment has been decreasing successively since 2011. Growth has slowed down largely due to the decline in commodity and oil prices as well as the effects of the transition from the Arab Spring.
Today in the low price environment, governments, especially in the GCC and other neighbouring oil exporting countries, are fiscally constrained. However, we see this in many ways as an opportunity for governments to begin reforms. A number of them have done so, tackling issues such as subsidies, which is the right time to do—in a low price environment.
Oil importers are doing better—for example in Egypt the government has taken bold steps on the reform front. These came at a high political cost but the implementation can lead to strong growth and equitable growth. Before 2010 Egypt had high rates of growth but it may aspects it was not seen as an inclusive growth.
We anticipate growth in MENA this year at about 3.1 per cent, higher than last year which was about 2.6 per cent. If you look at the market and the untapped potential, it’s a large market. There is a young and growing population. The interesting aspect in many parts of the region is that the government is usually seen as the employer of choice and people see the governments as an engine of growth. However, based on experience and what we’ve seen in other parts of the world, the private sector itself is the engine of growth and the government is the driver.
Therefore, a partnership needs to be created between these two segments and it is up to the government to create the right environment for the private sector to grow and prosper. We think that 90 per cent of the jobs around the world are created by the private sector. So what you need is a good business environment for the private sector to grow. In a fiscally constrained environment, the private sectors can step in and fill a number of government needs.
What economic trends in do you see developing amongst MENA countries?
Apart from the implementation of structural reforms, we also see a movement across the region for energy efficiency and renewables. This region has some of the highest rates of energy consumption per capita in the world. Governments today are looking to deal with this challenge and if you look at what’s happening in renewables, people see this region as an oil exporter and associate it with fossil fuels. This way they miss all the positive activity and development in renewable energy. The perception and reality of this region, in many ways, is very different.
For example, Jordan has done a very good job in attracting renewable energy investments and diversifying its energy source base. The UAE—they are leaders in renewable energy in the GCC. Saudi Arabia too is looking to promote and develop its renewable energy sector, and so is Egypt. You see a lot of things actually changing in the region. If you put away perceptions of geopolitical and political risks, the economic trends can be positive for the region.
What are the common challenges here?
One of the challenges in MENA is regional integration. We support regional champions and in MENA we found that there are a number of world-class companies that are equally competitive with a global presence. We are working with them to take them not only to other parts of MENA but also to places like Africa, East Asia and Latin America. This is one of our key objectives in this region. We think that these regional champions can promote regional integration, assist in linking the oil exporters and importers, help bring standards and give a different name to the region in the world.
Another main challenge is the business environment here. Governments create an environment that generates opportunities for the private sector. In relation to this, a concern for us in the region is population growth—there is need to create jobs to meet the demand of an increasing population. Additionally, an issue linked to the need to enhance growth is education. We see a need for partnerships between governments, the private sector and education providers on developing a curriculum that feeds the needs of modern industries. With disruptive technologies things are changing very fast and the children that are now in school may work 20 years down the road in jobs that do not even exist today.
Moreover, bringing more women into the workforce will stimulate the economy. They will help create growth and increase productivity. Today in the region, you have more women going into universities than men. So if more women are invited to join the workforce, they can make a huge difference.
What are the opportunities?
This region is doing very well in the services space. I see potential in areas such as healthcare, education, tourism, FMCG, pharmaceuticals and in infrastructure such as power generation and logistics. These are areas of opportunities in the region where the private sector can step in. Financial inclusion is also a big opportunity. Only eight per cent of bank lending goes to SMEs and only 20 per cent of SMEs have access to finance—from here you can see the market potential.
Another opportunity is in the entrepreneurship and IT space across all sectors. We see a strong entrepreneurial culture here and this is something that should be leveraged. Additionally we see a lot of activity in the IT space (fintechs included) and with the high rate of mobile penetration in the region this is an area to lookout for. Companies in this market segment have unique companies and interesting models that are regional but in some ways they are global in application. It has a lot of potential for growth and needs to be nurtured.
© Banker Middle East 2017