apofeed with “What Lies Beneath the Slow Economic Growth in the MENA?” attempts to elaborate on the current situation that is prevailing in certain MENA countries.
What Lies Beneath the Slow Economic Growth in the Middle East and North Africa?
A dynamic private sector is key for the economies of the region to grow out of their currently high debt levels; Unlocking sustainable growth in the region’s private sector requires reforms that facilitate innovation, the adoption of digital technologies and investments in human capital; Reforms to support these objectives must take account of sustainability and the global agenda to limit climate change
The European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD) and the World Bank have published a joint report, Unlocking Sustainable Private Sector Growth in the Middle East and North Africa (MENA) (https://bit.ly/3H73CdA). The report analyses constraints on productivity growth and limited accumulation of factors or production in the MENA private sector.
The report is based on the MENA Enterprise Survey conducted between late 2018 and 2020 on over 5 800 formal businesses across Egypt, Jordan, Lebanon, Morocco, Tunisia, the West Bank and Gaza. Historically, economic growth in the Middle East and North Africa has been weak since the global financial crisis of 2007-2009 and the Arab Spring of the early 2010s. Since then, gross domestic product (GDP) per capita has grown by only 0.3% a year in the MENA region. That compares unfavourably with rates of 1.7% on average in middle-income countries and 2.4% in the developing economies of Europe and Central Asia.
Achieving higher and sustainable growth is particularly important in view of other economic challenges facing the region. Public debt has increased considerably over the last decade, accompanied by declining investment. More recently, the coronavirus pandemic has battered the region, further straining public finances. In addition, the Russian invasion of Ukraine affects the MENA economies through higher hydrocarbon prices, risks to food security and declining tourism.
Against this background, it is important that policymakers exploit the potential of the private sector to propel the region towards greater prosperity.
“The spillovers from the war in Ukraine add to structural vulnerabilities in the region. The prospects for global financial tightening, persistently high energy and food prices and concerns for food security come on top of concerns related to weak economic growth and rising debt levels,” said EIB Chief Economist Debora Revoltella (https://bit.ly/2UYJi4s). “When responding to the new shock, MENA countries need to tackle the main structural bottlenecks affecting the region. Reforms that lower regulatory barriers, tackle informal business practices, promote competition, and facilitate innovation and digitalisation are crucial for achieving sustainable economic growth and improving resilience to future shocks.”
The business environment in the MENA region as reported in the survey has been held back by various factors. Political connection and informality are undermining fair competition, bringing economic benefits to a limited number of companies. Management practices lag behind benchmark countries, with a decline in average scores in all MENA countries since 2013.
Customs and trade regulations appear to be more severe barriers for firms in the MENA region than in other countries. Firms need more time to clear customs to import or export than in other countries. The MENA economies depend on high levels of imports compared to low export activities.
Although firms trading in the international market are more willing to develop and innovate processes, only 20% invest in innovation, which can affect the long-term economic prospects for the region.
The region needs to make better use of its human capital. Predominantly, only a few foreign-owned companies invest in training their human capital, and they tend to be digitally connected exporting firms. Additionally, a significant share of companies are not engaging in financial activities with other economic players, opting to self-finance voluntarily.
Incentives for companies to decarbonise are weak, and MENA firms are less likely than their counterparts in Europe and Central Asia to adopt measures that reduce their environmental footprint.
Unlocking sustainable growth in the region’s private sector, the report calls for MENA economies to lower regulatory barriers for businesses, promote competition and reduce disincentives emerging from political influence and informal business practices.
The region is also in need of reforms to facilitate innovation, the adoption of digital technologies and investments in human capital, while being in line with the global agenda to limit climate change, enhance sustainability and protect the natural environment.
Improving management practices can be instrumental to that. “Good management practices can account for as much as 30% of differences in efficiency across countries,” said Roberta Gatti, Chief Economist for the Middle East and North Africa at the World Bank. “Management practices are lacklustre in firms in the region, particularly in those with some state ownership. Improving these practices can have substantial benefits, is not costly, but is not easy. It will require — among others — a change in mindsets.”
Companies should also be given incentives to exploit the benefits of participating in cross-border trade and global value chains more broadly, accompanied by better management practices.
At the same time, the state has a duty to ensure that this transition process is just, through measures that help workers to take advantage of opportunities to obtain new, higher-quality jobs linked to the green economy, while also protecting those at risk of losing their jobs. Such measures include labour market policies, skills training, social safety nets and action to support regional economic development.
EBRD Chief Economist Beata Javorcik said: “Climate change creates an opportunity the MENA region to build up its green credentials and use them as a source of competitive advantage. This will create the much-needed high-quality jobs linked to the green economy.”
Distributed by APO Group on behalf of European Investment Bank (EIB).
Why and how does open banking make MENA an oasis of financial opportunities for investors? Maddyness answers quite elaborately as follows.
Economic growth in the MENA – Middle East and North Africa – region is on the rise, with Gulf countries leading the charge. The pace of innovation in places such as the UAE and Saudi Arabia is attracting foreign investment at a rapid rate, which, combined with dedicated tech programmes and an increasingly skilled workforce, sees the region stand out on a global front.
Although MENA’s escalating influence is widely known, it’s not necessarily talked about for facilitating financial progress in particular. Nonetheless, that’s about to change. In the past decade, the region has carefully cultivated a fertile soil that’s ready to flower. And it’s starting to blossom thanks to technological advances driving concepts like open banking that have the power to transform our financial future forever.
The UK’s longstanding relationship with MENA
It’s safe to say that the extensive opportunities haven’t gone unnoticed in Britain. Over several decades, the UK has maintained strong business ties and fostered stable relationships with MENA countries. For example, the UK has consistently been one of the largest investors in the global hub city of Dubai. So, with such a strong history, why is now an especially opportune moment to take notice of Middle East fintechs?
The transformation of the financial ecosystems in the region is certainly clear. MENA’s finTech sector is growing rapidly, with a compounded annual growth rate of 30%, paving the way for it to become a leading destination for digital financial activities in the very near future.
However, there is still plenty of room to maximise MENA’s full financial potential. The great disruptor of open banking (not to mention the even more progressive world of open finance) will be a driving force in attracting British investors to the region.
MENA as an emerging hotspot for investment
Before discussing the opportunity for fintechs, let’s take a step back. Why is there an opportunity in the first place?
The region’s demographics should enthuse any investor looking for innovation. The MENA population is one of the youngest globally, with an estimated 60% of the population under 30. Much of the region’s youth are also motivated to embrace new ways of thinking and leverage digital technologies to improve both their own lives and those of their communities. Internet penetration in MENA is one of the world’s highest.
Furthermore, the local population has proved willing to adopt digital solutions for their financial needs. According to research by Deloitte in 2020, 82% of customers in the Middle East are eager to start using fintech solutions, which coincides with the rise of a cashless economy.
Savvy entrepreneurs are already stepping up everywhere to capitalise on this market demand. Backed by the financially progressive infrastructure – which provides fintechs with regulatory support and government incentives – the fintech sector in the region has a very high growth rate. The UAE has become a hive of fintech activity – 465 fintechs there are set to generate over $2B in investment capital funding in the upcoming year, compared to merely $80M five years ago.
Open banking as the game changer
MENA is ready for disruptive innovations, which open banking can plentifully provide. Regulated access for fintechs to use financial data in order to provide solutions to a hungry audience will drive significant and sustainable economic growth. Consumers want more freedom to handle their finances and there is a need for better banking solutions, such as instant access to money and fully digitised payments.
Open banking makes all of this possible and more when banks, fintechs and even telcos work together to improve their products and put the customer in control. Against this backdrop, everyone can benefit if we move quickly to meet demand.
The emergence of a solid regulatory framework
We’re seeing MENA tread in the footsteps of the UK when it comes to regulating open banking. The PSD2 directive, which kicked off the concept in the UK, informs much of MENA’s recent developments in terms of its financial ecosystem. In Europe, the regulatory framework proved successful in levelling access to the financial services market and promoting the role of non-traditional financial institutions. As a result, the framework enhanced competition between financial service providers and provided consumers with better financial tools.
Similar regulations are shaping the evolution of MENA’s financial landscape, offering security for investors while remaining flexible enough to stay relevant in the face of constant technological development. Although the regulations differ across jurisdictions, making it potentially challenging for fintechs to scale throughout the region, any obstacles are well worth overcoming.
How to navigate your fintech journey in MENA
Considering the whole picture, MENA should get your attention as a rising star of the global financial scene. It is easy to see how becoming part of an emerging, but promising ecosystem yields tangible benefits for investors.
To comply with the regional frameworks and regulations, interested parties should seek local experts who know which paths to travel and how to traverse them. The rise of open banking is already a fundamental factor driving MENA’s financial environment forward, and its growth will only increase. As opportunity knocks, it’s better to be at the front of the queue than at the end of it.
The World Bank at a time when according to the IMF, the MENA region is on track for a recovery, despite some rising social unrest threatening the ‘fragile’ progress of low-income economies, produced the following enthusiastic remarks by World Bank Group President David Malpass address to the Arab Governors of the World Bank Group.
Remarks by World Bank Group President David Malpass to the Arab Governors of the World Bank Group
Let me begin by congratulating Minister Khalil. Your appointment as Minister of Finance comes at a crucial moment in Lebanon’s history. The World Bank Group will work with you to support the critical reforms needed to address Lebanon’s challenges. Thank you for mentioning Hela in your opening. She’s the new IFC Vice President for the region, and I want you all to know the high priority we place on private sector advancement in the region. All parts of the World Bank Group are making that a high priority.
Dear Governors and distinguished guests, it is a pleasure to be with you again to discuss the challenges and opportunities in your region. Thank you for your recent annual letter outlining the key and urgent development challenges of the region. Let me also thank our Dean Dr Merza Hassan for helping to convene this meeting and for his unwavering support to the MENA region.
We meet today against a backdrop of uncertainty. The COVID-19 pandemic has led to reversals in development gains in many regions, threatening jobs, social stability – and lives.
MENA was hit particularly hard by Covid 19. Even before the pandemic, growth had stalled, poverty was on the rise, and the social contract between citizens and the state was strained. Climate change adds a further burden to the development challenge.
During my recent visits to the region, to Sudan, Jordan and the Palestinian territories, I saw firsthand the impact of this multi-pronged crisis. I was concerned by low investment levels, high unemployment rates, and low female labor participation rates.
I also saw potential via regional integration, pro-growth investment, and improvements in the enabling environment for business. The recovery in global growth provides opportunities to make positive changes, and I was encouraged by my discussions with officials and businesses.
As you know, MENA is the least economically integrated region in the world. We have expressed our support for any initiative aimed at developing economic ties between countries in the region, and we are thus looking at ways to support the gas and electricity potential connection between Egypt, Jordan and Lebanon.
While we are not in a position to engage in Syria, we nevertheless are concerned about the Syrian people’s economic woes due to the degradation of the situation in the country. Our position has always been to look after the people, and we are doing so for Syrian refugees in Lebanon and Jordan.
In the year leading up to the next annual meetings in Marrakesh, my message will remain focused on the importance of improving access to vaccines; recovering from Covid; overcoming conflict; mitigating and adapting to climate change; containing debt; and creating strong sustainable jobs for the youth of this region.
Morocco has made progress on all of these, and I want to thank you for graciously hosting us in 2022.
As a region, MENA will need to generate 300 million new jobs by 2050. These will be created largely by the private – not public – sector. Reaching this critical goal of sustainable job creation needs governance and transparency, rule of law, and an attractive business environment.
IBRD, IFC and MIGA are fully engaged. I’m interested in hearing from you where the World Bank Group can position itself better.
As we move toward Marrakesh in 2022 and Cop27 in Egypt, how can the Bank Group assist in making these events a launching pad for more sustained and comprehensive development in MENA?
Thank you again for inviting me and let’s now open our discussion.
Hadi Khatib on AMEInfo of 18 September 2021 came up with this deep statement on the anxiety list for MENA entrepreneurs that is long, as is the one curing it
The anxiety list for MENA entrepreneurs is long, as is the one curing it
A research report on the mental health challenges and wellbeing of entrepreneurs due to COVID-19 in the MENA region revealed anxiety has several facets in the minds of these leaders. But all of these insecurities have cures.
55% of startup founders said that raising investment has caused the most stress.
More than 95% of entrepreneurs view co-founders as family members and/or friends.
Research finds that entrepreneurs are happier than people in jobs.
EMPWR, a UAE-based digital media agency dedicated to mental health and an exclusive mental health partner for WAMDA and Microsoft for startups, published a research report on the mental health challenges and wellbeing of entrepreneurs due to COVID-19 in the MENA region.
The research indicated that startup founders undergo higher levels of stress than the rest of the region, with twice the likelihood of developing depression issues.
55% of startup founders said that raising investment has caused the most stress; the pandemic was the second most-cited reason cited by 33.7% of respondents. 44.2% spend at least 2 hours a week trying to de-stress.
Other insights, uncovered by the report, include:
A good relationship between co-founders can help startups navigate the pandemic-hit market. More than 95% of entrepreneurs view co-founders as family members and/or friends
Many entrepreneurs live well below their means to fund their ventures, leading to stress that is detrimental to their health
With only 2% of healthcare budgets in the MENA region currently spent on addressing mental health, the impact of the COVID-19 pandemic on young entrepreneurs and achievers could lead to an economic burden of $1 trillion, by 2030, according to the report.
EMPWR’s MENA partners shared special offers on their mental health services for the region’s entrepreneur community.
From Saudi Arabia:
Labayh is offering the technology ecosystem a 20% discount on their online mental health services for 2 months. Promo code: empwr, with the offer valid until October 29.
O7 Therapy are offering 50% off their online mental health services, for 50 Entrepreneurs in the MENA region. Promo code: Entrepreneur50, valid until December 1, 2021.
From the UAE:
My Wellbeing Lab is offering 20 one-on-one coaching sessions to entrepreneurs that wish to be coached and helped; alongside unlimited access for any entrepreneur to their “Discovery Lab”, a platform that gives entrepreneurs and leaders insights into their mental wellbeing as well as their teams. Promo code: MWL21.
Takalam is offering 10% off for 3 months. Promo code: Impact.
Mindtales is offering the MENA ecosystem 50% off their services for one month. Their App can be downloaded here.
H.A.D Consultants is offering 20 one on one coaching sessions to entrepreneurs. Promo code: HAD_SME01.
Nafas, a meditation app focused on reducing stress, anxiety, and help with insomnia, is offering access to its platform. Register as a user via this link to redeem benefits.
Entrepreneurs’ mixed emotions
Entrepreneurs must grapple with uncertainty and being personally responsible for any decision they make. They likely have the longest working hours of any occupational group and need to rapidly develop expertise across all areas of management while managing day-to-day business.
Work on the economics of entrepreneurship traditionally assumed that entrepreneurs bear all the stresses and uncertainties in the hope that over the long term they can expect high financial rewards for their effort. It’s false.
2. Highly stressful, but…
High workload and work intensity, as well as financial problems facing their business, are at the top of the entrepreneurs’ stress list.
But some stressors have an upside. While they require more effort in the here and now, they may lead to positive consequences such as business growth in the long term. Some entrepreneurs appear to interpret their long working hours as a challenge and therefore turn them into a positive signal.
3. Autonomy is both good and bad
The autonomy that comes with being an entrepreneur can be a double-edged sword. Entrepreneurs can make decisions about when and what they work on – and with whom they work. But recent research into how entrepreneurs experience their autonomy suggests that, at times, they struggle profoundly with it. The sheer number of decisions to make and the uncertainty about what is the best way forward can be overwhelming.
4. An addictive mix
The evidence review confirms that, by any stretch of imagination, entrepreneurs’ work is highly demanding and challenging. This, along with the positive aspects of being their own boss coupled with an often competitive personality, can lead entrepreneurs to be so engaged with their work that it can become obsessive.
So the most critical skill of entrepreneurs is perhaps how they are able to manage themselves and allow time for recovery.
Stress management tips for entrepreneurs
Identify what the actual source of your stress is. Is it tight deadlines, procurement issues, raising capital, managing investors’ expectations, building a talented team, or delay in landing the first sale for your new startup business?
Even if numbering more than a few, break them down because unmanageable tasks look simpler when broken down into smaller segments. Then, list down how you plan to successfully tackle each issue. Meanwhile, exercising multiple times a week has been rated as one of the best tactics for managing stress.
Another technique for handling stress is to take a break. Rest as much as you can before going back to continue with the tasks. It’s also a good idea to reach out to friends, family, and social networks because they are likely to understand what you’re going through and offer words of wisdom and courage.
Stay away from energy-sapping junk food. Eating healthy keeps you fueled for the next challenge. Finally, get enough sleep, and power naps. Sleep helps your body and mind recover.
Hadi Khatib is a business editor with more than 15 years of experience delivering news and copy of relevance to a wide range of audiences. If newsworthy and actionable, you will find this editor interested in hearing about your sector developments and writing about them. He can be reached at: firstname.lastname@example.org
The MENA region, like much of the undeveloped world, is characterised by an omnipresent Informal Economy with however differing specifics. This label dates back to most countries Planned Economy. So why is now the Fintech industry poised for significant growth in the MENA region? And how? All world economies have an informal economy, and the duties of all business and governments alike leaders are to sustain, help and assist in its good maintenance and eventual development. Informal Economy is not Black Market and can easily be formalised to become the locomotive of any nation’s economic life. Could Fintech be of serious help here?
Any way, the reasons are tied to those specifics at this conjecture as well summarised by Ayad Nahas below.
The Financial Technology (Fintech) industry in the Middle East and North Africa (MENA) looks well placed to enjoy a period of substantial growth.
As many as 69% of adults remain totally unbanked in the region
Internet penetration in Saudi Arabia stood at 95.7% in January 2021
Fintech is going to be the “game-changer”
Fintech industry poised for significant growth in the MENA region
By Ayad Nahas, Communication Strategist
The Financial Technology (fintech) industry in the Middle East and North Africa (MENA) looks well placed to enjoy a period of substantial growth.
Part of this growth could come from a large unbanked population.
GCC expatriates with low and middle-income salaries constitute a large proportion of the unbanked such as in the UAE, where around 80% of the population is outside the current financial system.
Yet, regional smartphone and internet penetration is very high, reaching 2 mobile-cellular subscriptions per UAE inhabitant in 2019, while Internet penetration in Saudi Arabia stood at 95.7% in January 2021.
Regional governments spotted this opportunity and introduced regulation to substantially attract investments into the sector.
Fintech is a term that describes new technology which seeks to improve and automate the delivery and usage of financial services. At its core, fintech helps companies, business owners, and consumers better manage their financial operations, processes, and lives by applying specialized software and algorithms on computers and, increasingly, smartphones.
Fintech’s adaptability across a slew of consumer sectors is propelling its widespread acceptability. Managing finances, trading shares, furnishing payments, and shopping online (often on your smartphone) has never been more convenient.
At the forefront of the fintech disruption are agile innovations such as peer-to-peer (P2P) lending and crowdfunding, providing alternative lending platforms, and widening access to fundraising.
While they may currently still need some centralized form of finance, at the minimum, P2P lending and crowdfunding can use fintech and blockchain to quicken the process, avoid paying high banking fees, and garner the interest of digitally-minded Millennials and future Z-generations.
A recent report by consultancy firm Deloitte also states that the UAE houses over 50% of the region’s fintech companies, with nearly 39% of the population using fintech for P2P money transfer.
According to a report by Crowd Funder, a leading online source for the fintech industry, the number of financial technology companies in the Middle East increased from around 105 companies in 2015 to 250 firms in the year 2021.
Hanna Sarraf, a senior banking executive from the MENA region, said fintech is going to be the “game-changer” that will decide the winners and losers within the financial services industry, globally and in the Middle East, in the short and long terms.
He points out that new technologies and advanced data analytics are transforming the traditional banking business models from the way banks interact with customers to the way banks manage their middle and back-office operations.
The global fintech market is expected to reach $309.98 billion at a CAGR of 24.8% by the year 2022 according to many key sources from the banking industry. In the MENA, the fintech industry is expected to hit a record valuation of $3.45 bn by 2026.
The growth of this sector is currently being propelled by the rapid rise in fintech startups as a result of the very high internet penetration in the region. Another major factor is that several traditional banks are undergoing digital transformations or even becoming neo-banks, a trend especially evident in the UAE.
In a survey by the Boston Consulting Group (BCG) last October, 70% of respondents said they are actively searching for a new bank, and 87% said they would be willing to open an account with a branchless digital-only lender.
Today, the UAE is leading the pack in financial technology and developing itself as a digital-first nation when it comes to banking, payments, and fintech, as evidenced by the UAE’s first digital bank to provide both retail and corporate banking services and which will soon be launched and led by Former Emaar Chairman, Mohamed Alabbar.
According to many experts, the fintech market in the MENA region is set to account for 8% of the Middle East financial services revenue by 2022. COVID-19 turned out to be a wakeup call to switch from traditionally deployed financial services to more sustainable finance and technology platforms
The fintech revolution is set to continue to disrupt, and traditional banks must keep up with the pace of technology in order to stay relevant and competitive. In this rapidly evolving, ever-changing market, it’s time to innovate, integrate and accelerate into the future.
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