Global Recovery Offers Opportunity in Middle East, North Africa

The World Bank Group’s latest regional economic update projects growth in the Middle East and North Africa (MENA) region to accelerate from an average of 2.6% in 2013 to 4.6% in 2015. With the global economy set for a rebound, 2014 seems hopeful and 2015 could be a turning point for countries in the MENA region as they will start to benefit from stronger external demand in the high-income economies.

“Positive advances in the political climate of the transition countries could likely set the stage for gradual improvements in economic prospects,” saysInger Andersen, World Bank Regional Vice President for the Middle East and North Africa. “Persisting with the necessary economic and structural reforms will undoubtedly help countries in the MENA region tackle problems that have previously prevented them from moving to a higher and sustainable growth path.”

The outlook for the economies in the MENA region is cautiously positive. Higher global demand is expected to boost exports of energy and manufactured products in those countries that trade with high-income countries. The oil exporters in the MENA region, especially the GCC countries, are expected to lead the regional recovery with growth reaching 3.5% in 2014 and 4.8% in 2015. Large stimulus packages in the GCC countries together with flows to the rest of the region, particularly Egypt and Jordan, will continue to boost regional growth rates as capital and current spending continue to rise. Growth in developing oil exporting countries, including Iran, Iraq, Algeria, Libya and Yemen, is expected to rebound and average 6.8% in 2015, from negative 0.7% in 2013. The economies of oil importers including Egypt, Tunisia, Lebanon and Jordan, remain fragile but a slight growth rebound is expected over this period.

“The global recovery is still fragile and downside risks, including continued low inflation in high-income economies and the escalation of conflict in Ukraine, remain,” says ShantaDevarajan, World Bank Chief Economist for the MENA region. "The biggest risk to economic recovery in the MENA region is that long-standing structural problems do not get resolved."

The report, Middle East and North Africa: Harnessing the Global Recovery, a Tough Road Ahead, outlines economic challenges and opportunities facing countries in the region and underscores the importance of persisting with reforms. It warns that while the region is experiencing a slight growth rebound, helped by a recovery in the global economy and easing political tensions in some of the countries in transition, the prospects for a full economic recovery remain uncertain, should reforms stall.

Job markets in almost all countries in the MENA region are segmented with a sharp division between the protected and the excluded. Burdensome regulations put new and small firms at a disadvantage and labor markets are skewed toward public sector jobs. World Bank estimates show that about 28 million jobs are needed in the next 7 years just to keep the unemployment rate from rising. While income inequality has remained low and in some cases the incomes of the bottom 40% have been growing at higher rates than the average, vulnerability has increased and a large segment of the population could fall into extreme poverty in the event of an adverse shock.

Economic diversification has not happened as the region lacks investment in “intangible” capital, which includes education, innovation and strong institutions that foster competition. Corruption is prevalent in almost all countries in the MENA region and common particularly in public sector hiring. Nevertheless, the report's authors remain cautiously optimistic.