What is the MENA region?
MENA is the acronym for “Middle East and North Africa”, regularly used in academic and business writings. It refers to a large region, from Morocco in northwest Africa to Iran in southwest Asia, which generally includes all the countries of the Middle East and North Africa. (1)
Indeed, the MENA region comprises 18 countries. It covers the area south of the Mediterranean, from Morocco to Egypt, and to the east, from Yemen to Iran, via the Arabian Peninsula. The heterogeneity of economic and political realities has taken into account the formulation of specific strategies for three sub-regions: North Africa (Algeria, Egypt, Libya, Morocco, and Tunisia); the Middle East (Iraq, Israel, Jordan, Lebanon, Syria, and Occupied Palestinian Territory); the Arabian Peninsula and Iran (Bahrain, Iran, Kuwait, Oman, Qatar, Saudi Arabia, UAE, and Yemen).
MENA has no standardized definition, and the region and its constituent territories differ from one organization to another. However, the list of countries belonging to it is generally as follows: Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Sudan, Syria, Occupied Palestinian Territory, Tunisia, United Arab Emirates and Yemen. (2)
The region holds a significant share of untapped human resources, with the highest youth unemployment rate and the lowest female labor force participation rate in the world. Most of the world’s oil reserves belong to MENA countries. Tourism, however, is another strong branch of their economy. (3)
The population of the Middle East and North Africa region is ethnically, religiously and linguistically diverse. With high unemployment, MENA’s human resources are a relatively under-exploited. However, these countries are increasingly focusing on education to overcome this handicap.
The region’s instability leads to serious conflicts, which counterbalance development efforts. This is particularly the case in Syria, Libya and Yemen. Infrastructure and people are paying a heavy price for these wars, and 15 million people have had to flee their countries to avoid atrocities. (4)
The MENA region is marked by historical conflicts resulting from the Cold War or arbitrary border demarcations in the wake of decolonization, the race for raw materials, intra-Arab and inter-religious conflicts, as well as the Middle East conflict. The spread of terrorist groups such as the “Islamic State” casts a shadow over the peaceful dynamics in certain countries, as well as their efforts to prepare their often-young populations for the challenges of the 21st century. (5)
Ten years after the “Arab Spring”, (6) the results are disappointing: hopes of political renewal have not materialized. Instead, many countries in the region are suffering repression civil war and jihadism. (7) However, the protest movements marked a historic turning point that opens up new prospects for the future. (8)
Religions in the MENA region are historically diverse: beyond the three great monotheistic religions and their respective denominations stemming from the Abrahamic tradition, (9) many other religions have developed since antiquity, some of which are still practiced in the 21st century. The Middle East is the cradle of religions practiced by more than 4 billion people worldwide, making it of great historical and cultural importance, and its role as a crossroads of civilizations between Asia, Africa and Europe attracts large numbers of pilgrims every year. Islam is the majority religion in all Middle Eastern countries except Lebanon, where the majority religion is Christianity, and Israel, where the majority religion is Judaism. (10)
Shifting regional alliances
Since 2011, the political, economic and cultural influence of the three MENA sub-regions and the relations between them have been changing. North African countries are increasingly becoming aware of their belonging to the African continent, which is reflected in their increased engagement within the African Union. On the other hand, cooperation within the Arab Maghreb Union has virtually come to a standstill, (11) particularly due to tensions between Algeria and Morocco over the Western Sahara issue. (12)
In recent decades, the countries of the Arabian Peninsula have dethroned Egypt and the Middle East as the economic hub of the MENA region, but they are losing stability due to their internal tensions (the war in Yemen, tensions with Iran).
New regional disputes have pushed the conflict between Israel and the Palestinian population into the background and, after years of informal rapprochement, that paved the way for the normalization of relations between Israel and the United Arab Emirates (UAE) and then Bahrain in the summer of 2020. The UAE and Bahrain are thus, after Egypt in 1979 and Jordan in 1994, the third and fourth Arab countries to have normalized their relations with Israel.
These events are a sign of the profound upheavals that the Arab world has been going through for years. They have created a new dynamic, so that it cannot be ruled out that other countries will make the same progress. Saudi Arabia and the UAE are playing an important role in the formation of new alliances and divisions that mark the region. In addition, armed non-state or semi-state actors (Hizbu Allah in Lebanon and the Houthis in Yemen) are undermining the stability of several countries.
The MENA region is characterized by a complex linguistic and cultural landscape. It features the coexistence of Classical Arabic, Modern Standard Arabic, various dialects of Arabic, Amazigh languages, Kurdish, Hebrew, Farsi, and foreign languages such as French and English. This multilingual environment influences cultural exchanges, media, and social interactions across the region and with the rest of the world.
North Africa
The three main challenges facing the North African region, and thus the three priority thematic areas are: structural economic reforms to encourage employment and investment, the implementation of good governance principles, and safe and orderly migration. (13)
On the impact of good governance, legal system and economic freedom on foreign investment in the MENA region, Nada Kobeissi writes: (14)
“Within MENA countries, enhancing economic freedom in terms of trade, the financial sector and property rights is of absolute importance if the region is to attract more foreign investments. According to a World Bank report (World Bank, 2003), foreign investment could be five to six times what they are today, if exports other than oil were higher and were in better investment climates. Inefficient and costly services provided mostly by the public sector, raise the cost of MENA merchandise exports and limit attractiveness to investment (World Bank, 2003). The financial sector is controlled by state owned banks which dominate banking activities (up to 95% of assets in several countries in the MENA region) resulting in poor services, high costs, and weak financing of new investments and trade (World Bank, 2003). Due to a complete lack of faith in its domestic economic infrastructure, the Middle East holds the largest share of wealth abroad in the world, with $350 billion currently collecting interest abroad, rather than in local financial institutions.’’
North Africa is located in the immediate neighbourhood of Europe. The French language is also a link. In the south, North Africa borders countries in the Sahel region, characterised by a high level of poverty and instability. (15) It is in Europe’s interest for North Africa to be stable, prosperous and organised according to the rule of law.
The main factors that led to the “Arab Spring” protests, (16) namely the lack of economic prospects, youth unemployment, the repressive practices of national security agencies and limited opportunities to participate in political life, remain major challenges today. Some of North Africa’s shortcomings include: high population growth, (17) unequal participation in economic development and, to some extent, low resilience of the economy due to a lack of diversification, as well as the existence of youth training programmes (18) that are often ill-suited to the needs of the labour market. (19)
Excessive bureaucracy and technological backwardness are factors that explain the high unemployment rate among young people and the persistent unequal distribution of income and wealth in many countries. The lack of political and economic integration in the region is a hindrance to its development dynamics. (20)
Due to its cheap labour and geographic proximity, North Africa is an attractive production location. In response to the coronavirus crisis, Europe is also seeking shorter supply chains, for example in the agricultural or textile sectors.
With a total population of over 200 million, the region is already one of the most important export markets for Europe on the African continent. This is also why Europe is working to promote inclusive economic development in the Greater Maghreb, (21) which can open up horizons for younger generations.
In Libya, the overthrow of the former regime led to an internal armed conflict that is still ongoing. However, the “Arab Spring” also brought about positive developments. In Tunisia, a democratic process took place. (22) In some countries, despite the repression, there is also an active civil society that is mobilised in favour of civic and political freedoms.
Other ongoing developments may be of some importance. Indeed, several areas are directly threatened by the effects of climate change (23) and by the lack of access to fresh water. In addition, rapid urbanisation is a major challenge for cities such as Algiers, Casablanca and Cairo. In these areas, support is need based on innovative solutions. (24)
Middle East
The three main challenges facing the Middle East region, and thus the three priority thematic areas are: armed or political conflicts, economic development, and governance. In addition, successful start-ups occupying a leading position on the international stage are developing in several countries in the region, which opens up interesting prospects.
The Israeli-Palestinian conflict, which has been raging for more than 76 years, has crystallised around territorial claims. After the Second World War, the mandate for Palestine that had been entrusted to Great Britain by the League of Nations ended. In 1947, the UN adopted a partition plan providing for the division of Palestine under the British mandate into a Jewish state and an Arab state. The State of Israel was founded in 1948. (25) The Israeli-Arab conflict broke out the same year; It has led to a refugee crisis that is still ongoing. An estimated 750,000 Palestinians were on the run in 1950. (26) As refugee status is passed down from generation to generation, and because of the lack of a political solution and demographic changes, (27) there are now more than 5.5 million Palestinian refugees, according to statistics from the United Nations Relief and Works Agency for Palestine Refugees in the Near East, UNRWA. (28) Some of these people are stateless and others are citizens of other Near Eastern states. They live in the Occupied Palestinian Territory, Jordan, Lebanon and Syria. One third of them reside in locations officially recognized as refugee camps. The essential services provided by UNRWA are of crucial importance to Palestinian refugees. Since they rarely have access to the labour market, they are unable to develop long-term prospects and remain dependent on the system.
The Middle East continues to face major economic, social and political challenges. The population boom, restrictions on fundamental rights and difficult economic conditions are leading to high unemployment and protest movements. The young generation is particularly affected by the lack of economic prospects, which can foster the emergence of violent extremism (Jihadi Salafism). (29) The protest movements that have been shaking Lebanon since the end of 2019 and the reactions to the explosion in Beirut in August 2020 reflect a significant political awareness, but also the frustration of the population.
The acceleration of economic, financial and migratory exchanges, as well as the desire for genuine international governance, are making it urgent to create a new generation of managers. They must manage inequalities in development, the multiplicity of forms of exercising power and cultural diversity, firstly to prevent differences from becoming grounds for confrontation, and secondly to contribute to the dialogue of civilizations.
The Mediterranean and the Middle East together form a unique observation area for this type of challenge. A meeting point between Europe and the Muslim world, this region, marked by the Israeli-Palestinian conflict, the “Arab Springs” and their aftermath (the Syrian, Libyan and Yemeni crises), is dominated by major political, economic, energy, environmental and migratory issues. It is also a zone of complex political influences and repeated military interventions, offering countless examples of unexpected conflicts or, conversely, surprising cohabitations of identities, which constantly put to the test the universal character of democracy and the rule of law.
Investing in the MENA region
MENA micro, small and medium enterprises (MSMEs) (31) face major challenges in terms of competitiveness, sustainability, internationalization and capacity for innovation, requiring new solutions to ensure their growth and sustainability. Furthermore, the greening of the economy and the valorization of natural assets can bring economic and environmental benefits to the region. (32)
In this context, economic as well as environmental challenges need to be addressed, by supporting new sustainable business opportunities for young people and women, (33) and providing, also, support for the development of sustainable entrepreneurship and business initiatives, by creating an enabling environment and facilitating access to new markets with the aim of initiating economic opportunities and generating jobs for young people and women. (34)
In addition, the business support organizations financially-assisted by local governments are expected to operate on a long-term basis, as the grant is only an initial incentive. Their experience will be transferred to other stakeholders via the anchoring program and local business events. Such an initiative will have a positive impact on the development of protection policies. (35)
Doing business in the MENA
Doing business in the MENA region can be advantageous, as the World Bank’s 2019 report ranks the United Arab Emirates as the top Arab country for ease of doing business, (36) followed by Morocco and Bahrain. However, it is crucial to consider various economic performance factors and local regulations that can impact business operations in different countries within this region. (37)
Doing business in the MENA region can be promising due to the area’s strategic position and diverse markets. The region includes various countries that present growth opportunities, particularly for European businesses seeking to expand. Initiatives led by organizations such as the Organisation for Economic Co-operation and Development -OECD- (38) aim to foster entrepreneurship and enhance business collaborations with Europe. Additionally, there are events that focus on developing business ties between MENA and other regions, such as Canada, which emphasizes economic growth and partnership.
The MENA region is characterized by its diverse economies, with a significant focus on financial sectors. The region includes a relatively extensive banking sector, often showing higher loan-to-GDP ratios. Recent discussions and conferences, such as the first annual meeting of the MENA-OECD Business Integrity Network (MOBIN) in Morocco, emphasize the importance of transparency and integrity in business within this region.
In the current context of multiple crises – geopolitical, with the war in Ukraine and tensions in the Middle East (Gaza and Southern Lebanon), as well as financial, technological and climatic – it is more necessary than ever to seek synergies and new avenues of cooperation between the public and private sectors on both shores of the Mediterranean. (39)
Despite the current situation, there is hope to triumph over uncertainty, development ideas over violence, bridges over walls. There is a unique opportunity to network, to establish business contacts with decision-makers, to open the doors of different organizations and companies to the latest and most exciting regional projects.
In addition, MENA political leaders are obliged to help key players in business, industry, investment and the profession to understand the changing trends in all sectors, territories and groups of local economies in order to:
– To identify concrete, innovative solutions and trends that will shape the region and help its economic ecosystem move forward into the post COVID-19 and other new scenarios.
– To create a common, innovative space that serves as a basic axis for the development of relations between nations of the region.
– To promote the integration of the region to stimulate investment, exports, job creation and new businesses, with an emphasis on the development of women’s entrepreneurship throughout the MENA region.
– To build a common future based on new technologies, innovation, digital transformation, the green economy, renewable energies, health, tourism and sustainable food, among others.
– To identify sectoral opportunities and access to finance to help ensure a more equitable and sustainable entrepreneurial ecosystem.
– To understand how Islamic finance can support financial planning and economic development in the region. (40)
– To focus on the emergence and personalization of digital and data-driven medicine, the entry of disruptive and non-traditional competitors, the demand for expanded care delivery sites, and the renewal of payment and public finance models. (41)
– To develop the green and blue economy, (42) which will focus on the challenges and business opportunities for the involvement of advanced technologies in the region.
– To focus on the innovative and creative aspects of the textile sector to contribute to outcomes such as deeper industrial partnership and better jobs.
– To examine how to develop the tourism ecosystem (tourism, hospitality and cruise industry) in a careful and thoughtful way to provide the right products and experiences to meet the demand of future visitors.
Business development in MENA countries to create jobs
The most immediate challenge facing most MENA countries is job creation. These countries, which are already the hardest hit by mass unemployment in the world, especially among young people, and which also have the lowest employment rates in the world (especially among women), will see massive inflows into the labor market for at least another ten years.
Clearly, a large part of this job growth will have to come from the creation of a large number of small and medium-sized enterprises (SMEs). At the same time, thousands of small businesses will have to grow to “medium” size.
However, in most MENA countries, the creation and development of new businesses is hampered by a number of similar factors:
1- A lack of industrial dynamism: due to the shallowness of local and regional markets. This is a context in which the recent large influx of foreign direct investment (FDI) has not succeeded in reversing the region’s characteristic flight from the two main factors of production: people, in the form of emigration, and capital. (43)
2- Shortcomings in terms of productivity: in the face of which the keys to catching up can only be found in the training of men, or rather – since major efforts have been made in this area – in the integration of the best-trained people into the entrepreneurial dynamic.
3- Financing difficulties for small and medium-sized businesses: despite major banking reforms, there is still no guarantee that the banking situation is conducive to business development on the southern and eastern shores of the Mediterranean. Today, on average, three-quarters of investment in the region is self-financed, and only 12% is bank credit – the lowest rate in the world. (44) Meanwhile, default rates remain high, and banks are consequently demanding prohibitive collateral requirements: (45) 230% of outstanding loans on average for the MENA region, one of the highest rates in the world.
4- The requirement for asset collateral (46) (mainly real-estate mortgages) to open a loan or for the cash counterpart of international transactions in foreign currencies, as well as the lack of development in the mobilization of commercial paper and pledging, exclude many categories of companies and individuals from the credit market. (47)
Business development in The MENA countries to create jobs
The most immediate challenge facing most MENA countries is job creation. These countries, which are already the hardest hit by mass unemployment in the world, especially among young people, and which also have the lowest employment rates in the world (especially among women), will see massive inflows into the labor market for at least another ten years.
Clearly, a large part of this job growth will have to come from the creation of a large number of small and medium-sized enterprises (SMEs). At the same time, thousands of small businesses will have to grow to “medium” size.
However, in most MENA countries, the creation and development of new businesses is hampered by a number of similar factors:
-A lack of industrial dynamism, due to the shallowness of local and regional markets. This is a context in which the recent large influx of foreign direct investment (FDI) has not succeeded in reversing the region’s characteristic flight from the two main factors of production: people, in the form of emigration, and capital. (48)
-Shortcomings in terms of productivity, in the face of which the keys to catching up can only be found in the training of men, or rather – since major efforts have been made in this area – in the integration of the best-trained people into the entrepreneurial dynamic.
-Financing difficulties for small and medium-sized businesses. Despite major banking reforms, there is still no guarantee that the banking situation is conducive to business development on the southern and eastern shores of the Mediterranean. Today, on average, three-quarters of investment in the region is self-financed, and only 12% is bank credit – the lowest rate in the world. Meanwhile, default rates remain high, and banks are consequently demanding prohibitive collateral requirements: 230% of outstanding loans on average for the MENA region, one of the highest rates in the world. The requirement for asset collateral (mainly real-estate mortgages) to open a loan or for the cash counterpart of international transactions in foreign currencies, as well as the lack of development in the mobilization of commercial paper and pledging, exclude many categories of companies and individuals from the credit market.
Entrepreneurship in the MENA region
Entrepreneurship in the MENA region is characterized by its diversity and complexity, influenced by different cultural, economic, and social contexts. It serves as a key driver for economic development, facilitating job creation and the growth of local economies. Many projects aim to create favorable conditions for entrepreneurship in Southern Mediterranean partner countries.
The MENA region has witnessed significant growth in entrepreneurship over the past few years, particularly in southern and eastern Mediterranean countries. This growth is attributed to various programs supporting local economic development and encouraging investments, including those from emigrant entrepreneurs.
Entrepreneurship in the M region faces several challenges that can hinder business development and growth. Some of the main challenges include:
Regulatory Barriers: (49) Complex and often bureaucratic regulatory environments can impede the establishment and growth of businesses. Inconsistent regulations across countries can also create uncertainty.
Access to Finance: Many entrepreneurs struggle to secure financing due to lack of collateral, high-interest rates, or limited availability of venture capital and investment funds. Traditional banks may be hesitant to lend to new or small businesses.
Market Fragmentation: The MENA market is fragmented with diverse cultures, languages, and consumer preferences. This can complicate market entry strategies and require tailored approaches to different markets.
Quality of Infrastructure: In certain areas, inadequate infrastructure, such as transportation, logistics, and digital connectivity, can limit business operations and growth potential.
Political Instability: Some MENA countries experience political instability, conflict, or social unrest, which can deter investment and increase business risks.
High Unemployment and Skill Gaps: (50) While there is a large labor pool, there may be a mismatch between the skills of the workforce and the needs of businesses, leading to challenges in recruiting qualified employees.
Cultural Factors: Cultural norms and attitudes towards entrepreneurship can vary significantly. In some areas, risk aversion can limit willingness to start new ventures.
Economic Disparities: There are significant economic disparities within the region, with some areas being wealthier and more developed than others. This can affect market opportunities and access to resources.
Sustainability Concerns: (51) Enterprises must navigate the pressures of sustainable practices and environmental regulations, particularly in areas impacted by climate change and resource depletion.
Global Competition: (52) The MENA business landscape is increasingly competitive, with both regional and global players vying for market share, making it essential for local entrepreneurs to innovate and differentiate their offerings.Addressing these challenges requires a combination of supportive policies, access to resources, and collaboration among entrepreneurs, governments, and educational institutions to create a thriving entrepreneurial ecosystem. (53)
Micro, small and medium-sized enterprises (MSMEs) make up around 95% of all businesses in the Southern Mediterranean region, and are seen as the driving forces behind economic growth, job creation and inclusive, green growth. Entrepreneurs, especially start-ups, still face many challenges when it comes to creating, promoting and managing their businesses. Supporting these entrepreneurs through innovative initiatives and enhancing the ecosystems in which they operate will contribute to their development. In turn, entrepreneurs will contribute to the achievement of several Sustainable Development Goals (SDGs). (54)
MENA countries need to further diversify their economies in order to create jobs and better withstand the volatility of the global economy. One way of doing this is to strengthen entrepreneurial potential in STEM (science, technology, engineering and mathematics) fields such as green and blue biotechnology and their water-energy-food applications. Globally, agricultural biotechnology (technologies used to modify living organisms: plants, animals and micro-organisms) was valued at $50.05 billion in 2019 and is expected to reach $72.2 billion in 2024.
Similarly, blue biotechnology (biotechnology applications related to marine ecology and resources) in the European Union (EU) region saw investments of €336 million between 2014 and 2020. While the MENA countries benefit from an extensive coastline, similar economic potential can be exploited. These two sub-categories of biotechnologies can potentially offer economic opportunities to southern Mediterranean countries, especially if circular economy entrepreneurship were encouraged and administrative procedures eased.
Development of trade and business in the MENA region
The development of trade and business in the MENA region has seen significant evolution, particularly after the Islamic conquest, which greatly enhanced commercial exchanges. Despite some countries having underdeveloped industrial activities, sectors such as agro-food, textiles, and footwear show potential for growth as the region strives to establish itself as a leading global trade zone. (55)
The Mediterranean Sea has become one of the main international transport hubs, through which large quantities of goods pass every year. Its position as a strategic transit zone for a multitude of goods, particularly those transported by sea, makes it a logistics hub of vital importance. According to a report by the Spanish Statistical Observatory of Short Sea Shipping (SSS) (56) for the year 2021, overall SSS traffic on the Mediterranean coast has increased by 26.9%, exceeding pre-pandemic figures.
The MENA geographical area is characterized, among other things, by the great heterogeneity of the countries and players present in the institutional, political, economic and even social spheres, as it is the meeting point of three continents. (57) This means that, although the circulation of goods is a very active sector, there is still considerable room for improvement in the development of trade between the players in this zone (the zone has more strength as a logistics hub than as a trading center itself).
The strengthening of trade relations between all the countries in the MENA zone should have a positive impact at global level, and facilitate the joint development of all these countries. However, the aforementioned political and economic heterogeneity sometimes acts as a brake or blocking factor in the development and commercial collaboration between the parties.
The first, or simplest, analysis of applicable regimes or the nature of transactions would be that arising from a North-South divide. This is logical, since the majority of countries on the northern front are members of the European Union (EU) and, consequently, of the Community Customs Territory (CCT), (58) while the others are sovereign and independent countries with a very heterogeneous profile, including politically and culturally. This makes it difficult to establish stable, lasting relations between the parties.
We are therefore far from being able to consider that there is a trade regime specific to the Mediterranean Sea, or to companies in this area, that is capable of facilitating international transactions. (59)
The current situation represents a historic opportunity for this commercial development: the pandemic has brought about a change in production patterns, bringing them closer to consumer areas and, consequently, to the Mediterranean Sea. Some supply chains will move from global to regional level, so improving the region’s supply chain is essential.
The development of trade (60) and business in the MENA zone is hindered by fragmented maritime networks, which limit intra-regional maritime commerce. However, containerization has led to opportunities for growth, particularly favoring the North shore economies. Sustainable development and policy convergence are essential for enhancing trade dynamics in the region.
On the sustainable development in the MENA region, Edgar Göll, André Uhl and Jakob Zwiers argue: (61)
“Progress in realizing sustainable development in most parts of MENA is slow. Positive changes can be observed – concerning, for example, renewable energy – but even in the case of the most pressing issues fulfilment of the SDGs remains limited. Whereas many other countries in the world are also experiencing problems achieving the SDGs, there is one fundamental challenge that MENA societies have to deal with. In its ninth annual report, the Arab Forum for Environment and Development (AFED) concludes that implementing the 2030 Agenda and achieving the SDGs in Arab countries cannot be realized in isolation from addressing the many violent conflicts in the region (Saab and Sadik 2016). Because more than ten of the twenty-two Arab countries are either under occupation or experiencing war or conflict, tens of millions of people are refugees or internally displaced, and many lack basic needs and rights at multiple levels. Almost all Arab countries are adjacent to countries experiencing significant instability, or are suffering such a problem themselves, which undermines the potential advantages of regional cooperation and the critical role this can play in enhancing the implementation of national SDGs. Those Arab countries that have experienced severe damage and profound disarray in their physical and social infrastructures over the past years have seen the prospects for re-establishing the status quo prevailing in 2010 severely decimated, let alone for achieving the SDGs by 2030.’’
The development of commerce and business in the MENA region is characterized by various bilateral cooperation agreements and economic collaboration among Mediterranean countries. Notably, since the early agreements in 1969, there has been a focus on enhancing trade relations and economic integration within the region, particularly through initiatives led by local chambers of commerce.
The MENA region has a complex business landscape influenced by historical, cultural, and economic factors. It serves as a conduit for trade between Muslim and Christian regions, but faces obstacles to cooperation stemming from its diverse history. Additionally, the area saw limited industrial development until the 20th century, with significant changes occurring after 1930. This evolution has made the MENA area a focal point for global business discussions today.
The MENA region is characterized by diverse business environments and economic cooperation among its countries. Regional initiatives like the “5+5 Dialogue” (62) promote collaboration between Western Mediterranean countries, including Spain, Portugal, and France. Additionally, the Euro-Mediterranean Partnership aims to enhance economic and political relations between Europe and Mediterranean countries. These frameworks support growth, trade, and investment opportunities in tourism and other sectors. (63)
Israel’s place in the MENA region: economic slowdown
Israel’s economic performance was particularly good in 2022, and remains above the average for other OECD countries. Growth has been buoyant thanks to buoyant consumption and investment, while the fiscal year is set to end with a surplus. Although relatively moderate, inflation accelerated during 2022, forcing the Central Bank to significantly tighten monetary policy. (64) Against this more unfavorable backdrop for consumption and investment, activity is set to slow. In addition, the continued depreciation of the shekel has been a further inflationary factor. The fall in the exchange rate against the US dollar reflects the general strengthening of the dollar, but also the management by Israeli investors of their dollar-denominated assets. (65) External accounts remain solid, thanks to strong competitiveness in certain key sectors. The short-term evolution of public accounts is more uncertain. The recent installation of the new government is delaying the adoption of a new budget, which will limit its positive impact on economic activity. (66)
Economic activity remained buoyant in 2022. The consequences of the international energy crisis were very limited, given the country’s self-sufficiency in gas. More generally, Israel’s leadership in certain high-tech sectors reduces its vulnerability to variations in the international economic climate. (67)
In the third quarter of 2022, GDP grew at an annual rate of 5.8%, confirming Israel’s status as one of the most dynamic economies in the OECD (2.5% on average for OECD countries). Over the first three quarters of the year, growth reached 7.8%, driven mainly by household consumption and investment (productive and real estate). (68) After falling steadily since 2021, the unemployment rate has risen slightly since June 2022, but remains very low (3.9% November 2022). Due in part to accelerating inflationary pressures, real wage growth has been negative since October 2021. (69)
At the same time, consumer credit is not very dynamic in real terms, growing by 1.5% year-on-year in June 2022. By contrast, real estate lending to households (around 75% of total lending) grew strongly (+14% year-on-year in the first quarter in real terms). As a result, residential property investment has seen double-digit growth over the past two years (+18% Q1-Q3 2022 vs. same period 2021 after (+15% y-o-y in 2021); it accounted for around 30% of total investment in 2022. Growth in exports of goods and services also remains strong (+13% on average over the last four quarters), but the net contribution of foreign trade should be negative in 2022. For 2022 as a whole, the Central Bank of Israel forecasts growth of 6.3%. (70)
On the nature of the Israeli economy, OCDE writes: (71)
“De taille relativement modeste, l’économie israélienne dispose de ressources naturelles limitées et dépend fortement des importations. Néanmoins, grâce à la réorientation de l’action publique vers des politiques favorisant les mécanismes du marché à partir des années 80, un certain nombre de secteurs exportateurs à forte valeur ajoutée se sont développés et ont fortement contribué à la croissance du produit intérieur brut (PIB). À cet égard, on peut établir des parallèles avec certains pays d’Europe de l’Est et sans doute avec l’Irlande. Toutefois, à bien des égards, l’histoire brève mais frappante de l’État d’Israël a débouché sur une conjonction de circonstances économiques, sociales, démographiques et politiques qui le distingue radicalement de tous les autres pays membres de l’OCDE.’’
The outlook for the next two years is less favorable. Given the expected slowdown in global activity (the IMF forecasts growth of just 0.7% for the European Union, Israel’s main trading partner, and barely 1% for the United States), exports of goods and services are set to slow (+2% in 2023, according to the Central Bank) and the Gaza war economic repercussions (72) in the long run, (73) not to forget, of course, that the economic situation is much worse for the Palestinians of Gaza. (74)
In this regard, Gian Maria Milesi-FerrettiWrites in Brookings: (75)
“The Israeli economy starts in a strong position and has shown remarkable resilience to periods of strife and outright war in the past. The economy has grown at a fast rate since the global financial crisis of 2008-09 (4.2% on average, and 2.2% in per capita terms), and its GDP exceeded $500 billion in 2022 ($54,000 in per capita terms). The country has a net external creditor position exceeding 30% of GDP, and foreign exchange reserves exceeding $200 billion. This notwithstanding, the country is clearly affected through multiple channels, including the impact of military mobilization on labor supply, reduced tourism, and the impact of increased security concerns on public spending needs, investment, and capital flows. The shekel, which had weakened in the months prior to the attacks on concerns related to the Supreme Court controversy, has depreciated by about 5% in nominal effective terms since early October, and the Bank of Israel has taken measures to stabilize financial markets, including through the announcement of a program to sell up to 30 billion USD in foreign exchange reserves.’’
In addition, the tightening of monetary conditions will be a factor in the slowdown of domestic activity, particularly household consumption and real estate investment. Nevertheless, the increase in public spending announced by the new government should be an element of support, provided the new budget is passed within a reasonable timeframe and the government coalition remains stable. Against this backdrop, the Central Bank forecasts a decline in growth to 2.8% in 2023, before a moderate recovery to 3.5% in 2024, in line with the recovery of the global economy. (76)
In a difficult international environment in 2022, Israel’s external accounts remained solid. Over the first eleven months of 2022, the trade deficit widened by 6%, mainly due to the rise in the oil bill. Nevertheless, for the year as a whole, the current account balance is expected to be in surplus, thanks to the continued rise in service exports (mainly in the high-tech sector), which in recent years have become one of the main sources of current income (around 40% of total current income). The current account surplus should reach 4% of GDP by 2022.
In 2023, despite the downturn in commodity prices, the current account surplus is set to fall to around 3% of GDP, due to the slowdown among main trading partners. In the medium term, however, the current account surplus is set to widen. The development of new gas capacities and renewable energies (7.7% of the energy mix in 2021 and a target of 30% in 2030) will maintain relative energy independence, (77) and thus limit the consequences of possible new upheavals on the energy market. Furthermore, exports of high-tech goods and services will remain a structural advantage. (78)
As far as capital flows are concerned, (79) the competitiveness of the Israeli economy is attracting a large volume of foreign investment, mainly in the high-tech sector. Net foreign direct investment averaged 3.5% of GDP between 2017 and 2021. It is expected to remain at around 2.5% of GDP in 2022 and 2023. Portfolio investment flows were also significant in 2022 (USD11.5 bn in 3Q 2022). Balance-of-payments fundamentals therefore remain solid, and will continue to support the shekel in the medium term. (80)
The government’s budget is in surplus for the first eleven months of 2022, and although December is traditionally a month of markedly higher spending, it should reach 0.3% of GDP for the year as a whole. These good results are due to higher direct taxes and lower pandemic-related spending. Government debt should fall to around 61% of GDP by 2022. (81)
Given the recent formation of the coalition government (at the end of December), the 2023 budget has not yet been voted on, and an agreement is not expected before the second quarter at best, preventing the current government from committing to new spending. Although the expected economic slowdown will mean less growth in budget revenues, the situation is favorable for moderating the budget deficit. By 2023, it should stand at around 2.5% of GDP, and the government’s debt ratio should continue to fall (60% of GDP expected) thanks to nominal GDP growth. (82)
Nevertheless, the political constraint on budget spending could amplify the economic slowdown, depriving growth of a much-needed engine.
Plunged into a major conflict, Israel’s economy is weakening. To what extent? The first jolt was financial, but that’s not where the break came from: Tel Aviv’s main stock market index fell before recovering to near its initial value. (83) The exchange rate followed a similar path. At the end of October, the shekel fell to its lowest level against the dollar in more than 14 years, forcing the central bank to intervene. Since then, the Israeli currency has recovered and surpassed its pre-dollar level. (84)
Industries in the MENA region still lag far behind the performance of major emerging countries
The production performance of MENA countries remains highly disparate. A study carried out under the aegis of Forum Euroméditerranéen des Instituts de Sciences Économiques (FEMISE) (85) highlights the region’s lag behind the major emerging countries, with Morocco being a clear exception. (86)
Before talking about regional integration or integration towards the North, the countries of the MENA region need to improve their own positioning, particularly in terms of international competitiveness.
In a highly detailed study (FEM33-09) of the region’s industrial systems, the Centre d’Étude et de Recherche sur le Développement International (CERDI) identifies a whole series of handicaps. (87) However, there are notable differences from one country to another, as in the case of the textile sector. Between Lebanon and Morocco, business productivity rises from $1,780 per head to $10,610. Algeria ranks better than Egypt, with $4270 per head versus $3470. By way of comparison, these figures were $11,350 for China during the same period (2000-2004) and $10,480 for India.
Admittedly, in the absence of homogeneous and above all recent statistical data, the results of the study, which focused on these four MENA countries, should be treated with caution. But as they stand, its conclusions speak for themselves: at least over the first half of the decade, Morocco’s manufacturing sector is by far the most efficient, and its performance is fairly close to that of higher-development countries such as South Africa and Brazil, and rather better than that of China and India.
To explain this lag, the study focuses in particular on wage differentials. The unit cost of labor in the MENA zone is $540, compared with $390 in the countries studied outside the MENA zone (China, India, etc.). And in sectors as important for employment as textiles and clothing, Egypt and Morocco are 2 to 2.5 times more expensive than India. Hence the need to react quickly, or else the competitiveness of these countries will suffer from a pace of innovation and technological catch-up that is much faster in Asia than the rate of increase in labor costs, and which makes it possible to close the gap in product quality.
As for disparities within the MENA zone itself, the study refers to the “quality of the business climate”. In Morocco, openness to foreign markets, as measured by the export rate of goods or foreign ownership of company capital, enables better financing and, above all, opens up other markets for local companies. In Egypt, Algeria and Lebanon, it’s the institutions that slow down business. Public administrations are often corrupt and provide poor public services (electricity, telephone, etc.). For example, an importer can expect to receive his goods within 2 to 6 days in Morocco, but has to wait between 15 and 26 days in Algeria… And in Lebanon, the weaknesses of the state are barriers to entry for companies that have to bear the additional costs of poor governance.
For OCED, a rigorous approach to the economy in the MENA is a must: (88)
“A rigorous corporate governance framework is essential for MENA economies keen to promote growth and build prosperous societies. The G20 and OECD Principles of Corporate Governance, the OECD Guidelines on Governance of State-Owned Enterprises and the OECD Recommendation on Gender Equality are important references for the establishment of such a framework. This chapter provides an overview of the main conclusions and means of action available to public authorities, as set out in the following chapters. It first provides an overview of the overall economic situation in the MENA region, and then briefly reviews the subsequent chapters, devoted respectively to access to finance and financial markets, transparency and disclosure, more balanced representation of men and women in corporate management bodies, and governance of state-owned enterprises in the region’s economies.”
The MENA region is not a monolithic block
The changes described concern the region as a whole, but vary according to the country and its resources. The countries of the region can be grouped into two subsets: – a first group of countries, including the Maghreb countries, Egypt and Iran, with large national populations, and a second sub-group facing profound structural vulnerabilities and high levels of instability, including Iraq, Lebanon, Libya and Yemen, where the question of reconstruction may well arise. The case of Turkey is more complex. A member of the G20, it is not an oil-exporting country, and its economy is highly diversified and export-oriented. The stakes are more focused on the resilience of its economy in the face of oil and currency shocks.
The case of the Gulf States, which are racing against time to diversify their economies and make a success of the post-oil era, is emblematic. New growth sectors are emerging in areas as diverse as petrochemicals, tourism, entertainment and logistics. Today, the region is a major pole of attraction, hosting international cultural and sporting events such as the 2020 World Expo in Dubai, and has ambitions to become a hub of innovation.
The Maghreb countries also intend to take advantage of their position as a crossroads between Europe and Africa. Each country has its own ambitions in this area: – Morocco aims to become a regional industrial hub for new activities (aeronautics, automotive, etc.). – Tunisia aims to position itself in the digital sector, the pharmaceutical industry and medical tourism – Algeria, for its part, is seeking to establish itself as an energy and mining giant.
In this context, we need to understand the nature of the challenges in each country in order to transform them into business opportunities. French industry has everything it needs to position itself in this region. But it also needs to be aware of the delays it has accumulated in relation to other competitors, notably the Anglo-Saxons and Asians, in its approach to the region’s markets. (89)
To succeed in development strategy in the MENA region, it is essential to grasp the economic, political and cultural dynamics underway, without ignoring the security and geopolitical stakes, and to adapt to the new economic orientations and opportunities they offer. This macro-level understanding must also be accompanied by a more detailed knowledge of the realities on the ground. The traditional business relationship is increasingly outdated. Countries in the region are looking for long-term partners, committed to local production and job creation. It is important to go beyond the official institutional network and understand the realities of decision-making mechanisms, to be able to identify and use the right interlocutors and partners, and to adapt to local requirements. (90)
Additionally, succeeding in development strategy in the MENA region requires a shift in mindset and culture related to policy design, monitoring, and assessment. This involves understanding the diverse economic and social landscapes of the various countries within the region and adapting strategies to local contexts. Collaborating with stakeholders, investing in human capital, and seeking innovative solutions to specific challenges are also crucial for effective development. (91)
This also applies to the search for funding, and to understanding the roles and complementarities of the various players involved. Intercultural management must also be at the heart of the thinking of companies wishing to work with this region. One needs to bear in mind the differences between corporate cultures, (92) the place of local traditions and customs, and the importance of building close relationships with contacts. (93)
According to Amina Buallly the effectiveness of Islamic banking hinges on: (94)
“The performance and effectiveness of governance principles continue to be a matter of concern (Mollah and Zaman, 2015). Focusing on differences between conventional and Islamic banks, this study aims to examine the relationship between governance and bank’s operational (return on assets [ROA]), financial (return on equity [ROE]) and market performance (Tobin’s q [TQ]).”
And she goes on to say about her methodology:
“This study examined 127 banks within the Mena countries for the 10 years 2007 through 2016, for a total of 1270 observations. The study’s independent variable is corporate governance principles; the dependent variables are ROA, ROE and TQ. Also, the study uses bank- and country-specific control variables to help measure the relationship between governance and bank performance.”
As to what concerns findings, she points out:
“The findings deduced from the empirical results demonstrate that Sharia’ah governance significantly influenced ROA and ROE. However, corporate governance significantly influenced TQ. Furthermore, the results indicated that there were differences between Sharia’ah governance and corporate governance with regard to operational, financial and market performance.”
In the short term, with an estimated 4.2% reduction in GDP this year in the MENA region, the economic cost is likely to be significant. The result will be worsening budget deficits, recessionary situations and even greater inequalities among populations. Tourism and industry are at half-mast in countries such as Tunisia, Morocco and Egypt. But all the countries in the region are committed to revitalizing their economies, and if we look to the longer term, this gloomy picture can be nuanced. The Gulf States, for example, have a considerable capacity for resilience, thanks to their colossal financial reserves, estimated at 2,500 billion dollars. This is certainly not the case for other countries. (95)
However, the crisis could provide opportunities for some of them, especially those with the infrastructure and experience to welcome foreign investment. Many international companies will want to reduce their dependence on China. Countries like Egypt and Turkey could benefit from this. The same applies to the Maghreb, which boasts a high-quality, young, well-trained workforce and a strategic geographical position. These are assets that companies looking to relocate their investments in supply chains or business services can leverage.
The economies of the Maghreb countries are characterized by relatively small trade volumes with both the Arab world and global markets, with exports concentrated in a limited range of commodities. Despite individual progress within each country, the Maghreb region remains the least integrated economically in the world, potentially impacting their trade and economic growth. Additionally, the region is strategically located as maritime economies between advanced European nations across the Mediterranean Sea. Like any promising market, the region is characterized by tough competition.
Fossil energy
The Middle East and North Africa region has clearly suffered less than other than other economies from the fallout of Russia’s invasion of Ukraine. Rising oil and gas prices have allowed energy exporters to cushion the blow. Energy importers, for their part apparently weathered the economic storm relatively well. Over time, however, this apparent regional appeasement is bound to be eroded, as energy prices go down and MENA countries realize that, over the coming decades, the world will be turning away from fossil fuels.
Turning away from fossil fuels involves transitioning to sustainable energy sources to reduce reliance on carbon-intensive fuels. This shift is becoming essential in global policy, as nations and corporations aim for decarbonized energy systems to combat climate change. Many discussions around these transitions are taking place in international climate forums, such as Cop28, (97) although commitments can sometimes be underrepresented in official resolutions.
Decarbonizing the MENA region involves reducing greenhouse gas emissions through various initiatives, with about 70% of the region’s emissions now included in net-zero pledges, a significant increase from 60% two years ago. Efforts are being made to enhance cross-border public-private collaboration and improve the policy and regulatory environment to support these decarbonization goals. (98)
Each country in the region will also have to chart its own course towards sustainable future, both economically and socially. Although the countries of the MENA region are heterogeneous, they will all have to make the transition to more sustainable and equitable energy systems, and to a more sustainable and equitable energy future, both as energy suppliers and consumers.
The energy transition (99) will involve fundamental changes in regulation, pricing, subsidies and energy distribution mechanisms, which are deeply rooted in the socio-economic fabric of MENA countries, for both oil exporters and importers. Macroeconomic and financial policies will also have to be adapted to take account of the risks associated with climate change and the energy transition. For most countries – and in particular for oil importers this will involve investment in new energy production and distribution structures, which will require substantial external financing.
For oil-exporting countries, particularly those with smaller populations, the challenge will be not so much for oil-exporting countries, particularly those with smaller populations, the challenge will not be so much to finance new structures as to guarantee the quality and efficiency of their spending on economic diversification and energy transition. These countries face the risk of having large untapped hydrocarbon assets, which will sharply reduce their wealth and revenues.
The energy transition
The MENA region is slow to realize its considerable renewable energy potential. (100) According to the U.S. National Aeronautics and Space Administration, the area with the highest solar radiation includes the Middle East and North Africa. The technological changes needed to make the transition from fossil fuels to renewable sources present considerable economic opportunities for the MENA region, especially as the costs of renewable energies such as solar and wind power – are falling. Governments in the MENA need to tap into the vast reservoir of renewable resources on their territories to accelerate the transformation of their energy systems, which would have the dual benefit of reducing greenhouse gas emissions and preventing energy costs from rising. (101)
In isolated and developing regions, the promotion of decentralized energy systems could also contribute to the economic empowerment of local communities. Several MENA economies are already investing heavily in renewable energies. The United Arab Emirates, an oil-exporting country, and Morocco, an oil-importing country both engaged in ambitious efforts to develop their renewable energy resources. The United Arab Emirates would like to see 30% of the energy used to generate from clean sources by 2030. Morocco, host of the United Nations Climate Change Conference in 2016, is aiming for 52% of its installed generation capacity to be powered by clean energy by 2030. Morocco has launched construction of a huge solar power plant in the Sahara Desert, which is expected to provide a capacity of two gigawatts, making it the world’s largest solar power plant. (102)
The growth in the share of renewable energies in the MENA region is one of the fastest in the world. However, this is largely due to the fact that the initial figures are very low. Overall, the installation of new renewable energy capacity in the MENA is lagging behind The International Renewable Energy Agency (103) (IRENA). (104) In 2019, renewable energies accounted for just 26% of the increase in energy capacity in the Middle East, compared with over 70% in the rest of the rest of the world. Energy efficiency is an opportunity to be seized, particularly for the GCC countries. The authorities must focus on energy efficiency in addition to reforming pricing. (105)
Transforming energy systems in the MENA region will require substantial investments. According to Yilmaz et al (2022), (106) the investment gap in sustainable energy MENA region – i.e., the gap between the current level of investment in clean energy to meet global demand while limiting the impact on climate change. It is the second largest in the world, after sub-Saharan Africa.
The MENA region must, at the very least, increase its investment in the electricity to close this investment gap, and thus to meet the region’s electricity needs while limiting greenhouse gas (GHG) emissions. This represents an effort of around 70 billion USD per year. (107) On a positive note, green investments are attracting growing interest from the global financial community. To capitalize on this interest MENA economies, need to tackle the endemic barriers that limit the ability of their energy capacity to absorb investment. (108)
The World Bank, the European Development Bank, the African Development Bank, Islamic Development Banks and other development banks should provide more loans to investors in the energy sector to help the MENA region to fill this gap, in particular by attracting private sector investment. To achieve this, these financial institutions need to modify their lending facilities to support MENA countries in their energy transition and increase their resilience to climate change. The IMF has already set up a Resilience and Sustainability Trust, and the World Bank has indicated its objective of increasing its contribution to climate financing, in particular for projects promoting green energy. It should be noted, however, that the amounts involved are still small, and that the mechanisms to encourage private-sector financing are not yet sufficient. (109)
Economic outlook for the MENA region
Against a backdrop of conflict and debt, the outlook for the Middle East and North Africa is clouded by uncertainty.
The World Bank’s latest economic report for the Middle East and North Africa, entitled “MENA Economic Update, April 2024 : Conflict and Debt in the Middle East and North Africa”, (110) highlights the impact of stagnant growth, rising debt and increasing conflict-induced uncertainty on local economies.
According to the report, the economies of the Middle East and North Africa region are set to return to modest growth similar to that of the decade prior to the pandemic. Gross domestic product (GDP) in the MENA region is expected to rise by 2.7% in 2024, a modest increase on the 1.9% recorded in 2023. As in 2023, oil-importing and oil-exporting countries should grow at less disparate rates than in 2022, when higher oil prices boosted growth in oil exporters. For the Gulf Cooperation Council (GCC) countries, the increase in growth forecast for 2024 reflects expectations of robust activity in the non-oil sector and a reduction in oil production cuts towards the end of the year. GDP growth is expected to slow in almost all oil-importing countries.
The growth forecast for the MENA region is projected to remain modest, with an expected growth rate of about 2.9% in the year 2024, which is a downgrade of 0.5 percentage points from earlier predictions.
The report examines the economic impact of the Middle East conflict on the region. Economic activity in the Gaza Strip is almost at a standstill, with an 86% fall in GDP in the last quarter of 2023 as a result of the war on Gaza. The West Bank is in recession, affecting both the public and private sectors. A recent World Bank report highlights the damage suffered by the Gaza Strip and the devastating effects on its population.
The economic impact of the conflict on the rest of the region has remained fairly limited, but uncertainty has intensified. For example, the shipping sector has had to cope with the disruption by diverting ships from the Red Sea, but any prolonged disruption to passage through the Suez Canal could lead to higher commodity prices regionally and globally.
The report also examines the growth of indebtedness in the MENA region. Between 2013 and 2019, the median debt-to-GDP ratio of MENA economies increased by more than 23 percentage points. The pandemic has exacerbated this situation, as declining revenues, combined with pandemic-related support spending, have increased the financing needs of many countries.
This rise in indebtedness is particularly concentrated in oil-importing countries, whose debt-to-GDP ratio currently exceeds the world average for emerging and developing countries by more than 50%. With a proportion approaching 90% of GDP in 2023, oil-importing countries in the MENA region have a debt/GDP ratio almost three times higher than that of the region’s oil-exporting countries.
The report highlights arguments that MENA oil-importing countries have failed to reduce their indebtedness or bring their debt under control, underlining the importance of fiscal discipline to limit indebtedness. (111) Crucially, off-budget spending, which has been significant in some MENA economies, has contributed to rising debt and compromised fiscal transparency. For oil-exporting countries, the challenge is to diversify the economy and sources of income, given the structural changes in world oil markets and the growing demand for renewable energies. (112) Overall, MENA economies need to embark on structural reforms, particularly in the area of transparency, in order to stimulate growth and ensure sustainable development.
The impact of high public debt on economic growth in the MENA (Middle East and North Africa) region is multifaceted and can be understood through several key points: growth threshold, crowding out effect, fiscal constraints, investor confidence, vulnerability to shocks, debt sustainability, and social implications.
On the issue of governance and public debt accumulation, Ben Ali Tarek and Zidi Ahmed argue: (113)
“In recent years, the governments of MENA region have faced serious policy challenges (civil wars, low oil prices, lower fiscal revenues and currency shortages, refugee crisis, terrorist attacks, spillovers from conflict in the region, political transitions of countries undergoing Arab Spring). Consequently, these countries are facing major fiscal and external imbalances due especially to high cost of war, low oil prices and a decline in trade. This situation can push these countries to increase their public debt to boost their economy and finance their economic development. However, this solution may increase their country’s vulnerability to national and international financial shocks, especially that vulnerability is often greater for smaller and emerging market countries because their economies may be less diversified, have a smaller base of domestic financial savings and less developed financial systems, and be more susceptible to financial contagion through the relative magnitudes of capital flows. This political risk which has been well identified by the World Economic Forum’s 2016 Global Risks Report ranks “Failure of national government (e.g., failure of rule of law, corruption, political deadlock, etc.)” as the sixth highest global risk in terms of likelihood (IMF, 2016).”
In conclusion, while public debt can be used to finance growth-enhancing projects, excessive levels can lead to significant economic challenges in the MENA region. Managing debt effectively is vital to maintaining economic stability and fostering sustainable growth. (114)
Conclusion
In this vast region encompassing the Middle East, North Africa, Turkey and Iran, most economies have embarked on transitions towards new, more inclusive and sustainable models of economic development to address the many economic, social and security challenges they face. Among these elements of vulnerability, it is important to emphasize first and foremost the dependence of many Arab economies on the export of a single product, which makes all growth volatile and therefore fragile. Added to this is a private sector that has been unable to assert itself, a deeply rooted informal economy and very high tensions on the labor market, with very high youth unemployment. (115) Finally, the many crises and conflicts that have plunged some of the region’s countries into instability and even chaos, are reflected today in the plight of refugees and displaced persons. A transition and reform movement are gathering pace in many countries, leading to major changes in legal, juridical and financial terms. This is a pivotal time for the region as a whole, bringing profound changes, as well as opportunities and future prospects for companies wishing to expand there.
Doing business in the MENA region can be advantageous, with the UAE being ranked as the top country in the Arab world for ease of doing business according to the World Bank’s 2019 report. However, businesses may face various challenges due to differing economic policies, regulatory environments, and local market conditions across the region.
The MENA region can be complex due to varying economic conditions, regulatory environments, and cultural factors. Recent trends indicate that many economies in the region are accelerating reforms to improve the business climate. While issues such as workforce skills are not a major concern for most Lebanese companies, overall development of inclusive labor markets is essential for sustainable growth. It is advisable to familiarize yourself with local regulations and market conditions.
Working in the MENA region involves understanding its diverse markets, local regulations, and cultural nuances. Successfully navigating this area often requires building strong local partnerships and adapting to varying business practices across countries. Always ensure to stay informed about changing economic conditions and legal frameworks.
In the MENA region, there are several cultural considerations to keep in mind to foster positive relationships and successful negotiations such as respect for traditions and customs by understanding and respecting local customs, religious practices, and social norms. For instance, the significance of Ramadan and prayer times can impact business operations. Also, it is vital to building relationships because personal relationships are crucial. One ought to take time to establish trust and rapport before discussing business. Networking and face-to-face meetings are often preferred over electronic communication.
On another level communication styles to be adopted have to be indirect. One has to be attentive to non-verbal cues and nuances. It is, no doubt, important to approach discussions with diplomacy and patience and take into consideration hierarchy and authority because many MENA cultures value hierarchical structures. One must be prepared to address senior individuals and understand that decision-making may be centralized. (116) Negotiations procedure can be lengthy and may involve multiple meetings. One must be very patient, as hasty decisions can be seen as disrespectful. It’s common to discuss terms extensively before reaching an agreement.
The dress code is very important in so much as appropriate attire is synonymous of respect, often it leans towards formality. However, in conservative countries, modest clothing is expected. On the issue of gender dynamics, (117) it must be understood that gender roles can vary significantly. In some regions, women may have a more prominent role in business compared to others, where traditional views may prevail. One has to be culturally sensitive and adaptable to these dynamics. (118)
As to what concerns business etiquette, one mustbe punctual, although in some cultures, time may be viewed more flexibly. When greeting, a handshake is common, but be cautious with physical contact, especially with women.It is, also, important tofamiliarize oneself with local customs regarding gift-giving, as it may vary by country. Gifts may be expected in business and are often viewed as gestures of goodwill. Although English is widely spoken in business contexts, knowing a few phrases in Arabic can demonstrate respect and commitment to the local culture. (119)
Cultural sensitivity in the MENA (Middle East and North Africa) region is crucial due to the diverse traditions, ethnicities, religions, and languages that characterize the area. Businesses and organizations operating in this region must be aware of these cultural differences to effectively engage with local communities and succeed in their ventures. Awareness of cultural nuances can significantly enhance business goals and improve ROI. (120)
By being aware of and sensitive to these cultural nuances, businesses can create a more harmonious working environment and improve their prospects for success in the MENA region. (121)
Many countries in the MENA region are implementing various reforms aimed at improving the business climate, enhancing competitiveness, and attracting foreign investment. These are regulatory Reforms that Simplify business registration processes and reduce bureaucratic hurdles to make it easier to start and operate a business. This includes online registration systems and streamlined licensing procedures. There is also economic Diversification, indeed countries like Saudi Arabia (Vision 2030) (122) and the UAE are actively pursuing diversification of their economies away from oil dependence, promoting sectors like tourism, technology, and renewable energy.
The MENA countries have alsoset up investment incentives introducing attractive incentive packages for foreign direct investment (FDI), including tax breaks, grants, and special economic zones to encourage investment in various sectors as well as public-private partnerships (PPPs) (123) which promote collaborations between the public and private sectors to improve infrastructure, healthcare, and education, creating more opportunities for businesses. The MENA countries are also implementing changes to labor laws to make hiring and firing processes more flexible, enhancing labor mobility, and improving workers’ rights to create a more dynamic employment environment. (124)
On another level, MENA countries are investing in digital infrastructure and encouraging digital entrepreneurship to foster innovation and enhance efficiency in business operations. Likewise, in the financial sector reforms have been undertaken to strengthen regulatory frameworks in the banking and financial sectors to enhance access to financing for startups and SMEs. Also, legal and judicial reforms have been introduced to improving the efficiency of legal frameworks and judicial processes to ensure better enforcement of contracts and protection of investor rights.
The MENA countries are encouraging regional integration to facilitate trade agreements and economic partnerships that promote cross-border investments and trade within the region and adopting sustainability initiatives to encourage green business practices and investments in renewable energy in line with global sustainability goals. (125)
The region is currently experiencing important initiatives aimed at enhancing regional integration. Despite being among the least integrated in the world economy, the MENA countries are working towards improving efficiency, diversifying their economies, and building trust among nations. As of recent reports, MENA’s total exports accounted for 6.2% of total world trade, indicating a degree of global economic interaction, but still reflecting the potential for further integration. (126)
These reforms are vital for improving the overall business environment and are being tailored to meet the unique needs and challenges faced by each country in the MENA region. (127)