Here’s how to achieve growth in the Middle East and North Africa

A thriving private sector is essential to drive sustainable economic growth.

• Economic integration will make MENAP a more competitive region.
• Selective deregulation, free movement of resources and common standards will encourage economic integration.

The story behind tapping the potential for the Middle East, North Africa, Afghanistan, and Pakistan (MENAP) region is rather similar to the popular children’s tale of a small plucky train, a stalled locomotive, and challenging terrain.

When considering its size (representing approximately 9% of the world’s population) and strong economic and cultural ties, it’s fair to say the large and powerful locomotive of the MENAP growth opportunity is not running at full steam, accounting for only 3.4% of global GDP (of which Foreign Direct Investment represents a meagre 1.6%).

In addition, it must navigate a terrain of grand visions, mired in the complexities and challenges unique to our region. And then there’s the average GDP per capita crevice. To achieve what the World Bank defines as “upper middle-income countries”, our region faces a $2.5 trillion gap to bridge.

The challenges are undeniable, but the ramifications of truly unlocking its potential are compelling enough that we must persevere. Simply starting on the path of economic integration could unlock up to $230 billion (or around 7.8% of regional GDP, bringing us in line with the impact felt in, for example, the EU at around 8.5%).

Which leads us to ‘The Little Engine That Could’. According to a 2018 McKinsey Global Institute report, emerging market economies that experience high growth share two characteristics. Outperformers develop pro-growth agendas across public and private sectors to boost productivity, income, and demand. Outperforming economies are propelled by large companies that drive a significant part of GDP growth. On average, these outperformers have twice as many companies with revenues over $500 million as other emerging economies.

Put simply, the development of a thriving private sector, and in particular of multinational private sector champions operating at scale, is essential to driving sustainable economic growth.

Estimated impact of economic integration in MENAP. Image: McKinsey Global Institute

These companies not only tend to focus on sectors that tap into global demand, helping drive a greater share of exports for the outperforming economies, they also bring productivity benefits by investing in assets, R&D, and capability building at a higher rate than small and mid-size enterprises.

Along with these direct effects, large companies indirectly stimulate the creation, growth, and productivity of SMEs in their supply chains — and in turn, depend on these SMEs to provide intermediate inputs for their ecosystems.

So why are none of the MENAP countries included in MGI’s analysis on high performing emerging market economies?

On one hand, our region has an underdeveloped private sector compared to global benchmarks; but I would also argue that the fundamentals are not in place for private sector companies to scale and become pan-regional players with a right to play on the global stage. Ultimately, economic integration will be required to transform MENAP into a stronger and more competitive region, and a more attractive place for global talent to thrive.

Creating the right conditions for this integration, pragmatically speaking, comes down to three levers: selective deregulation; free movement of resources (including people, goods, services, and data); and the implementation of common standards across the region.

What stands out when considering regions that have already achieved degrees of success, is the relative simplicity and ease with which companies can do business; where selective deregulation has contributed to breaking monopolistic market structures, fostering healthy competition, and attracting foreign investments.

Unhindered, the movement of resources provides multiple benefits, including greater choice of goods and services for customers across the region, a more dynamic labour market that encourages talent nomads to pursue the most attractive opportunities, and harmonised data regulations that can catalyze organizations’ abilities to leverage data-driven insights.

Considering that currently, less than 20% of the goods trade in MENAP is intra-regional, the need to stem the brain drain of talent from the region, and the hugely positive impact that data can contribute to servicing the fast-evolving wants, needs, and behaviours of the region’s citizens and visitors, this lever is critical to any measure of lasting success.

And lastly, creating common regulatory standards across the region would constitute a major release of successful economic integration and should be considered for the sectors that drive the greatest value creation.

Of course, only a concerted effort and a portfolio of initiatives will get us closer to the creation of an economic regional bloc that has a meaningful role to play on the global stage.

And while no institution or individual alone can address, surmount and overcome the challenges the MENAP terrain presents, the engines of the private sector can and should lead the way.

The World Economic Forum’s theme this year issues a rallying cry, for communities and networks to work together to amplify their collective impact.

I believe it is the responsibility of large companies across MENAP to think strategically about the ways in which they will make a positive contribution and drive a step change in the advancement of the region in which we operate, and the world at large. In other words, now is the time for private sector leaders to step up and act in the best interests of the ecosystem, not only to satisfy their shareholders’ expectations.

It will require extraordinary leadership, grit, unwavering commitment and incredible perseverance — an unshakable belief that together, we are the engines that can.

But I am an optimist and believe we can rise to this challenge and create a region that can flourish and contribute its fair share to global growth. This will not only lead to economic prosperity for MENAP and its people but also leave a mark that will make a positive difference to our generation and the youth that will inherit our legacy.

This article was first published in weforum.org