ShareMENA economic outlook subject to substantial downside risks
WASHINGTON: The World Bank has lauded economic steps that have been taken by the Kuwaiti government for boosting the private sector, saying these moves "are on the right track". The Kuwaiti government is seeking to limit the state participation in the economy to bolster the private sector and minimize barriers facing commerce and investments, the report notes. Key initiatives that have been taken by the Kuwaiti government cover laws, privatization, partnership between the private and public sectors in fields such property development, education, water, sewage, transports and management of solid waste. These efforts have been exerted in the right direction, the WB report affirms.
On the Middle East and North Africa (MENA), the report said economic growth in the region will slow by 0.6 percent this year compared with 1.2 percent last year. The growth forecast for 2019 is revised down by 0.8 percentage points from the April 2019 projection due to lower oil prices since April 2019 and a larger-than expected contraction in Iran. MENA's economic outlook is subject to substantial downside risks, most notably, intensified global economic headwinds and rising geopolitical tensions.
The latest edition of the MENA Economic Update titled "Reaching New Heights: Promoting Fair Competition in the Middle East and North Africa" discusses the current sluggish growth due to conservative oil production outputs, weak global demand for oil and a larger-than-expected contraction in Iran. On the other hand, a boost in non-oil activities in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates), most prominently in construction, partially offset the dampening effect on the region's average growth numbers as a result of Iran's economic contraction.
"Countries in the region have implemented bold reforms to restore macroeconomic stability, but the projected growth rate is a fraction of what is needed to create enough jobs for the fast-growing, working-age population," said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa region. "It is time for courageous and far-sighted leadership to deepen the reforms, to bring down the barriers to competition and to unlock the enormous potential of the region's 400 million people as a source of collective demand that could drive growth and jobs."
In the medium-term, the World Bank expects real GDP in the MENA region to grow at 2.6 percent in 2020 and 2.9 percent in 2021. The projected pickup in growth is largely driven by increasing infrastructure investment in GCC countries and the recovery in Iran's economy as the effects of current sanctions wane. However, the report warns that a further escalation in regional tensions could severely weaken Iran's economy and spill over to other countries in the region. While rising oil prices would benefit many regional oil exporters in the short run, the overall impact would be to hurt regional trade, investment, and spending on infrastructure.
In addition to providing economic growth forecasts for each country, the report highlights how unfair competition results from markets dominated by state-owned enterprises and politically-connected firms which deters private investment, reducing the number of jobs and preventing countless talented young people from prospering.
"The lack of fair competition is holding back the development of the region's private sector, which history has shown to be the source of broad-based growth and jobs," said Rabah Arezki, World Bank MENA Chief Economist. "Countries in the region have an opportunity to transform their economies by levelling the economic playing field, and creating business environments that encourage risk-taking and reward innovation and higher productivity."
Unleashing regional demand accompanied by arm's length regulation that fosters competition and fights anti-competitive practices could prevent the perpetuation of oligarchies, the powerful few who often seize control of liberalization attempts, with the unfortunate result that the idea of reform is sullied among the citizens. The report calls for strengthening competition laws and enforcement agencies. It also calls for more efficient management leading to potential corporatizing of state-owned enterprises, promoting the private sector, and setting up watchdogs to rebalance contestability between them. - KUNA
