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OECD CONFERENCE on Investment in MENA
Istanbul, February 11-12, 2004
Part IInvestment Climate Reform:
Challenges for the MENA Region
Xavier Forneris, FIAS, World Bank & International Finance Corporation ([email protected])
They are huge
Well known, described in many studies and reports by WBG and others
For instance, my colleague Gilles Garcia of the World Bank European Office well summarized the challenges in the following 8 slides
PART 1: Economic & Social Challenges
facing the MENA Region
18 countries (from Morocco to Iran – not including Turkey -> ECA region)
300 million inhabitants (60% < 24 years old)
40% of the under 24 are unemployed
100 million jobs must be created in the next 20 years
=> 5 million new jobs a year needed
Growth in the MENA Region:
huge challenges ahead
Past 20 years : Slow growth and rising unemployment
Growth close to 2-3% (on average) => not sufficient to reduce poverty Unemployment > 14%Non-oil exports have remained low and stable (around 7% of GDP)
Low Growth Rates
GDP Growth rate, MENA 1963-2000(Algeria, Egypt, Kuwait, Oman, Morocco, Saudi Arabia , Syria,Tunisia)
-2
0
2
4
6
8
10
12
14
16
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Annee
po
urc
enta
ge
Unemployment increased
Unemployment rate, MENA 1980-2000
0
2
4
6
8
10
12
14
16
1980 1990 2000
% d
e la
pop
ulat
ion
activ
e
High-income countries
Middle-income countries
MENA
On this page the MENA region includes 12 countries for which data was available: Algerie, Egypte, Iran, Jordanie, Liban, Maroc, Syrie, Tunisie, Yemen, Oman, Bahrein et Arabie Saoudite.
Exports have not increased
Exports (% of GDP)MENA (all countries)
2
7
12
17
22
27
32
37
42
47
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
Year
pourc
enta
ge
Non-oil Exports Total Merchandise Exports
0
50
100
150
200
250
MENA10 ECA5 EASIA3 LAC4
Bill
ion
of U
S d
olla
rs
ECA-5: Czech Republic, Hungary, Poland, Russia, Turkey;
EASIA-3: Indonesia, Malaysia, Thaïland; LAC-4: Bolivia, Chile, Mexico, Brazil
Non oil exports ($34 Billion) below other Regions of comparable size
Trade and Investment are central for growth and employment
WB research suggests that if only half of the
trade & FDI potential of the region could be
realized, the per capita income could increase by
4% a year
An unrealized FDI potential
0
1
2
3
4
5Al
geria
Mor
occo
Iran,
Isla
mic
Rep
.Sy
rian
Arab
Egyp
t, Ar
ab R
ep.
MN
A10
Tuni
sia
Jord
anLe
bano
nSa
udi A
rabi
a
Cam
eroo
nBa
ngla
desh
Gha
naPa
kist
anTu
rkey
Cot
e d'
Ivoi
reM
alay
sia
Sout
h Af
rica
Rus
sian
Fed
erat
ion
Philip
pine
sG
uate
mal
aM
aurit
ius
Kore
a, R
ep.
Indi
aEc
uado
rH
unga
ryC
osta
Ric
aSl
ovak
Rep
ublic
Thai
land
El S
alva
dor
Col
ombi
aM
exic
oBu
lgar
iaJa
mai
caBo
livia
Cze
ch R
epub
licPo
land
Chi
leC
hina
Braz
ilAr
gent
ina
IDE
net r
eels
sur
IDE
nets
atte
ndus
, USD
/hab Pays les p lus
perf o rmant s
pays les mo ins perf o rmant s
Source: World Development Indicators.Note: Regression is based on 42 countries; values for 2 low-income countries (Indonesia and Yemen) are not reported because of negative values.
Conclusion of Part 1
• MENA’s challenges call for dramatic increases in both trade & investment
• Private investment (including FDI) is far below the Region’s potential
• How to go about it? How to improve the investment climate?
Resting on strong political will and partnership with the Private Sector, an effective strategy starts with a thorough, objective diagnosis of the constraints affecting a country’s investment climate and their prioritization
Many tools exist to diagnose the key constraints and monitor reform impact/progress over time
PART 2: Improving the
Investment Climate
(1) Evaluating the overall climate -> the “Big Picture” approach
The FIAS Diagnostic of the Investment Climate (not a survey)
The Investment Climate Assessment - ICA (survey of firms)
Assessing the Investment Climate: some “tools” used by the World Bank
Each approach (ICA and FIAS Diagnostic) has its merits
Both nicely complement each other and lead to concrete recommendations for policy reforms
Assessing the overall
Investment Climate:
More on the ICA: a survey instrument
• A core survey instrument linking constraints to firm-level productivity
• Quantitative questions in terms of dollars and days• Standardized sampling and implementation across
countries• Additional modules reflecting country circumstances
(e.g., Regulatory costs, SMEs…)
What we can learn from a WB Investment Climate Survey:
the example of Algeria
The following 6 slides were prepared by my colleague NajyBenhassine of the MENA region when presenting the initial
results of the Algeria ICA survey ([email protected])
Algeria ICA - constraints to doing business: the usual suspects…
Main Obstacles to doing business
Info
rmal
secto
r/unfa
ir co
mp.
Acces
s to c
redit
Credit
cost
Tax ra
teUnce
rtain
ty on
policy
Bank dela
ys
Corru
ption
Tax au
thor
ity
Acces
s to l
and
Acces
s to fo
rex
Other
Customs/r
egulat
ions
Firm cr
eatio
n
Lack of
skill
ed la
bor
Port a
uthor
ity
Acces
s to t
elephon
e
Labor
legis
lation
Acces
s to e
nergy
Num
ber
of r
espo
nses
Very severe obstacle
Average obstacle
Major obstacle
Not an obstacle
Minor obstacle
Algeria - most severe constraints : informal/unfair competition, access to credit, land
Most severe obstacle to business
Informal/unfair comp.
Access to credit
Access to land
Tax rate
Uncertainty on policy
Corruption
Credit cost
Tax authority
Res
pons
es
Third mostsevere
Second mostsevere
Most severe
57.5%
79.8%
20.5%
80.2%
22.1%27.6%
0.0%
25.0%
50.0%
75.0%
100.0%P
erce
ntw
ith
recr
uiti
ngpr
oble
ms
Inad
equa
tetr
aini
ng
Lab
orle
gisl
atio
n
Lac
k of
qual
ifie
dla
bor
Una
ttra
ctiv
elo
cati
on Oth
er
Algeria ICA: Lack of qualified labor
Perception on judicial systemP
erce
nt r
espo
nses
Never
Rarely
Sometimes
Generally
Often
Always
Quick
Can enforce decisions
Consistent Fair and unbiased Honest,
corrupt-free
Had judicial case in the past 5 years
Algeria ICA: Judicial system
Public services
216.7
20.6
133.9
106.6
35
121.5
0
50
100
150
200
250
Insta
lling a
telep
hone l
ine
Repar
ing th
e tele
phone l
ine
Connec
tion to
elec
tric n
etwor
k
Gettin
g a co
nstructi
on per
mit
Compan
y reg
istra
tion
Longe
st dela
y per
mit/
licen
se
Day
s
0
10
20
30
40
50
60
Tho
usan
ds D
A
Delay
Informal payments (if any)
Algeria ICA: Public services
19.6% 18.9%
37.7%
42.1%
3.6 3.6
4.94.7
0%
10%
20%
30%
40%
50%
Building/ offices(All)
Building/ offices(5-19)
Land (All) Land (5-19)
Per
cen
t of
firm
s se
arch
ing
0
1
2
3
4
5
6
#yea
rs s
earc
hin
g Series4
Series3
Percent searching
#years searching
Algeria ICA: access to land and buildings…
(1) We first looked at the “Big Picture”approach (assessing the overall investment climate, through ICAs and FIAS Diagnostics)
(2) Now, let’s focus on a frequent problem: the cost of doing business. How to measure it? How to address it?
Assessing the Investment Climate: some “tools” used by the World Bank
The Cost of Doing Business
• To reduce transaction costs, one first needs to measure them.
• The WB has 2 useful tools: « Doing Business »and « FIAS reviews of Administrative Barriers to Investment »
Starting a Business
Enforcing a Contract
Flexibility of Labor regulation
Getting Credit
Closing a Business (insolvency)
“Doing Business” (WB research) compares the cost of doing business in 130 countries
using 5 indicators:
Starting a Business
Closing a Business (insolvency)
(Results available at: http://rru.worldbank.org/DoingBusiness)
“Doing Business” : let’s look at some of the results for the MENA region
STARTING A BUSINESS
4
1116 18 20
23 2429
36 36 3842 43 44 45 45 46 46
53
9598
115
0
20
40
60
80
100
120
Den
mar
k
Net
her
lan
ds
Sw
eden U
K
Sw
itzer
lan
d
Italy
No
rway
Alg
eria
Fin
lan
d
Mo
rocc
o
Tu
rkey
Syr
ia
Eg
ypt
Isra
el
Ger
man
y
Gre
ece
Leb
ano
n
Tu
nis
ia
Fra
nce
Po
rtu
gal
Jord
an
Sp
ain
Number of days required
18
9
10
13 13
14
16
1111
9
7
66
11
1010
54 44
3
6
0
2
4
6
8
10
12
14
16
18
20
Sw
eden
Den
mar
k
Fin
lan
d
Nor
way
Isra
el
Leb
ano
n
Sw
itzer
lan
d
UK
Net
her
lan
ds
Ger
man
y
Ital
y
Fran
ce
Syr
ia
Tu
nis
ia
Mor
occ
o
Po
rtu
gal
Sp
ain
Eg
ypt
Turk
ey
Jord
an
Gre
ece
Alg
eria
Number of steps required
5.90 0.8 31 3.1
16.4 16.7 19.1
3.9 4.78.5 12.5
24.131.9
69.6
61.2
49.8
37.1
16.413.7
129.9
0
20
40
60
80
100
120
140
Den
mar
k
Sw
eden UK
Fra
nce
Fin
lan
d
No
rway
Isra
el
Ger
man
y
Sw
itze
rlan
d
Po
rtu
gal
Net
her
lan
ds
Sp
ain
Tu
nis
ia
Syr
ia
Mo
rocc
o
Ital
y
Alg
eria
Tu
rkey
Jord
an
Eg
ypt
Gre
ece
Leb
ano
n
Administrative Costs & Fees(as % of income per capita)
0 0 13.2 19.6 32 32.1 33.1 33.8 41.4 43.4 49.6 52.3 70.7 73 83.1 103.8145.3351.7
762.5788.6
24
0
1000
2000
3000
4000
5000
6000
Isra
el
UK
Tur
key
Spa
in
Fin
land
Fra
nce
Nor
way
Sw
itzer
land
Sw
eden
Por
tuga
l
Italy
Den
mar
k
Net
herla
nds
Alg
eria
Leba
non
Ger
man
y
Gre
ece
Tun
isia
Mor
occo
Egy
pt
Minimum Capital( % of income per capita)
CLOSING A BUSINESS(INSOLVENCY)
0.9 0.91
1.21.3
1.5
1.81.9
22.2
2.42.5
2.6 2.6
3.5
4 44.1
4.24.3 4.3
4.6
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5F
inla
nd
No
rway UK
Ger
man
y
Italy
Sp
ain
Tu
rkey
Mo
rocc
o
Sw
eden
Gre
ece
Fra
nce
Tu
nis
ia
Net
her
lan
ds
Po
rtu
gal
Alg
eria
Isra
el
Leb
ano
n
Syr
ia
Den
mar
k
Eg
ypt
Jord
an
Sw
itzer
lan
d
Time required for liquidation(in years)
1 1 1
4 4
8 8 8 8 8 8 8 8 8 8 8
18 18 18 18 1
0
5
10
15
20
25
30
35
40
Fin
land
Net
herl
ands
Nor
way
Alg
eria
Swit
zerl
and
Den
mar
k
Ger
man
y
Gre
ece
Jord
an
Por
tuga
l
Spai
n
Swed
en
Syri
a
Tun
isia
Tur
key
UK
Egy
pt
Fra
nce
Ital
y
Leb
anon
Mor
occo
Cost of insolvency procedure(% estate)
The Cost of Doing Business
Comparing « Doing Business » and FIAS Admin. Barrier studies.
• « Doing Business » = good tool to quickly benchmark countries (130 countries covered and growing) against 5 key indicators (more to be added in 2005)
Reducing the Regulatory Burden
• « FIAS Admin. Barriers studies » focus on administrative procedures (not bankruptcy or access to credit) and:
(a) cover all procedures an investor has to go through to set-up a business and start operating and
(b) Provide an in-depth analysis of those and detailed, concrete, and implementablerecommendations for their simplification.
Administrative Barriers
•Acquire Business Visa
• Register with Investment Promotion Agency
•Apply for Incentives
•Register Business
•Apply for Investor Permit
•Find Land
•Apply for Land
•Get Employer ID
•Get Import Permit
•Apply for Expatriate Work Permits
•Get Tax ID
•Apply for License
•Negotiate with Unions
•Repatriate Profits
•Claim Incentives •Export Goods•Renew Investor Permits
•Renew Licenses
PART 3:
Improving the investment climate in MENA:
Designing and Implementing a Strategy addressing the main Constraints
Investment climate reform in MENA region: some priorities emerge in spite
of countries’ varying situations (1)
• Clear need for Governance, transparency reforms
• Accelerate economic reforms (liberalization)
• Reduce tariff and non tariff barriers to trade
Investment climate reform in MENA region: some priorities (2)
• Improve physical infrastructure, access to land
• Invest in Education, Labor Skills
• Reduce Transaction costs, regulatory burden
• Reform Tax System & Incentive Regimes
New reality call for New FDI Policies
In the past:• FDI was treated with suspicion• Key objective was to protect local industry
from competition• State was dominant in the economy
Result => restrictions to FDI, a “command & control approach”
From Control to Promotion
With globalization came:• Greater recognition of the benefits of FDI• Focus on liberalization, deregulation,
increased competition• More limited role for government
=> More liberal FDI policy=> Emphasis is less on control and more on promotion
Shift From Control to Promotion Creates Opportunities for the IPAs
IPAs have a central role to play, not only through promotion per se, but:
• investment facilitation,
• servicing investors and
• policy advocacy here is the link with IC Reform
In the new context, calling from far-reaching Investment climate reforms,
the IPAs of the Middle East have a central role to play
Ideally positioned to (a) identify constraints affecting firms and on this basis to (b) formulate proposals for specific reforms and (c) to advocate for these changes with the Government.
Policy advocacy the new frontier for IPAs ?
WHERE TO GO FOR ADVICE?
For any assistance in designing & implementing investment policy reforms based on country’s circumstances and best international practices one partner: the Foreign Investment Advisory Service (FIAS) of the World Bank and IFC
Thanks for your attention.
Xavier Forneris - - [email protected]