The World Bank released a report regarding growth forecasts in the MENA region this year, saying that economies in the Middle East and North Africa will see growth of 4.1 per cent in 2011 and 3.8 per cent in 2012.
While warning that global uncertainty is clouding the horizon, the bank has hiked its 2011 forecast for the MENA region by half a percentage point, from its May prediction, due to expanded fiscal policies and increased oil production, excluding Libya. Nonetheless, forecasts say next year will see a decrease of half a percentage point as a result of lower oil prices and the global economic slow-down.
The report noted that investment in the MENA region has been strong over the last two decades in comparison with Latin America and Eastern Europe, but in oil exporting countries, such as Algeria and Oman, it has been primarily supported by large and expanding public investment.
In contrast, oil importers, like Egypt and Morocco, have shown more strength in private investment, which has increased in recent years.
“When governance is good, public investments crowd in private investment by providing the energy, roads, logistics and communication links necessary for firms to function productively,” said the report.
Public investment cannot replace private investment, especially in countries with poor governance.
The study highlighted that with poor governance, public investment is more likely to crowd out private investment by using resources that would otherwise be used by the private sector.
Moreover, public investments may not stimulate growth because they go in unproductive sectors beneficial only to a minority seeking personal gain.
The report stressed the role of private investment in services and manufacturing as engines of job creation and income growth in the region.
While the majority share of foreign direct investment (FDI) received by the region flows into the real estate and fuel sectors, the Bank’s evidence suggested most FDI-related jobs are in fact generated in the manufacturing sector. (Source: www.yallafinance.com)
