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Geopolitical Tensions Affect Growth in MENA in 2019

Geopolitical Tensions Affect Growth in MENA in 2019

In its World Economic Outlook published yesterday, the IMF cut forecasts for almost all countries in the MENA as the region is going through some geopolitical troubles or as posted by NORTH AFRIC of October 15, 2019, in its article titled ‘World Bank: Geopolitical Tensions Affect Growth in MENA in 2019.’

Economic growth in the region of North Africa and the Middle East is expected to drop to 0.6 pc in 2019 against a 1.2 pc growth posted last year, says the World Bank in its latest report.

The growth forecast for 2019 has been revised downwards due to intensified global economic headwinds and rising geopolitical tensions, explains the WB, noting that the current sluggish growth is due to conservative oil production outputs, weak global demand for oil, and a larger-than-expected contraction in Iran.

On the other hand, a boost in non-oil activities in the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, the United Arab Emirates), most prominently in construction, partially offset the dampening effect on the region’s average growth numbers as a result of Iran’s economic contraction.

“Countries in the region have implemented bold reforms to restore macroeconomic stability, but the projected growth rate is a fraction of what is needed to create enough jobs for the fast-growing, working-age population,” said Ferid Belhaj, World Bank Vice President for the Middle East and North Africa region. “It is time for courageous and far-sighted leadership to deepen the reforms, to bring down the barriers to competition and to unlock the enormous potential of the region’s 400 million people as a source of collective demand that could drive growth and jobs.

In the medium-term, the World Bank expects real GDP in the MENA region to grow at 2.6 pc in 2020 and 2.9 pc in 2021. The projected pickup in growth is largely driven by increasing infrastructure investment in GCC countries and the recovery in Iran’s economy as the effects of current sanctions wane.

However, the report warns that a further escalation in regional tensions could severely weaken Iran’s economy and spill over to other countries in the region.

While rising oil prices would benefit many regional oil exporters in the short run, the overall impact would be to hurt regional trade, investment, and spending on infrastructure, affirm the WB experts.

They also tackled the issue of unfair competition in the MENA region saying that “countries in the region have an opportunity to transform their economies by leveling the economic playing field, and creating business environments that encourage risk-taking and reward innovation and higher productivity”.

The WB report calls for strengthening competition, streamlining management of state-owned enterprises and promoting the private sector.

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UAE spy arrest shows universities must do more

UAE spy arrest shows universities must do more

Matthew Hedges says: my UAE spy arrest shows universities must do more to protect academics working in the field.

The picture above is of UAE Crown Prince Mohamed bin Zayed, who was contacted by British diplomat Jeremy Hunt about the Matthew Hedges spying case as reported by UPI. Photo by Andre Pain/EPA-EFE.

Matthew Hedges with his wife Daniela Tejada. Author provided

Matthew Hedges, Durham University

This article is part of a series on academic freedom where leading academics from around the world write on the state of free speech and inquiry in their region.


Last year I was imprisoned for nearly seven months in the United Arab Emirates (UAE). I was held predominantly in solitary confinement, endured heavy interrogations, with my human rights violated on a daily basis.

During my imprisonment, I was force fed drugs, battled depression and thoughts of self-harm. Later, having endured nearly half a year of isolation and mistreatment, I wrestled with thoughts of suicide.

Eventually, in a trial lacking all due process and disregard for international legal standards, I was handed a life sentence. My crime? Undertaking academic research for my doctoral thesis.

My research examines the evolving national security strategy of the UAE, and my knowledge has evolved from years of professional work and research in the UAE and the wider Middle East and North Africa.

I had no reservations about conducting research in the UAE. And I underwent a rigorous ethical and fieldwork assessment and was sure to follow established protocols before and during my trip.

I complied with the university’s requirement to remove all Emirati research subjects as it was assessed that these nationals would not be safe nor trusted when engaging in security-related academic research. And I was happy to go along with the university and the third-party risk firm employed to assess any other risks for researchers travelling overseas. But unfortunately, as my experience proved, this was simply not enough to protect me or my integrity as an academic.

A vulnerable position

It became clear there was a lack of understanding by the Emirati authorities about what a legitimate academic is, and about how research is carried out. Standard actions needed to complete field research – such as interviewing sources, researching books, articles and maps along with taking notes – were very quickly taken out of context and distorted by the UAE security authorities. I routinely battled to explain how information cited in my thesis was referenced from publicly available academic books and not from “secret intelligence sources” as the interrogators would often claim.

Following my release, I have had the opportunity to reflect upon my experience. I have also been lucky to travel to academic institutions in the UK and US to discuss the ramifications of my experience upon academic research.

When discussing how academic fieldwork actually works, my main observation has been that beyond the academic community, there is a very limited understanding of what academic research actually consists of. As such, there is little understanding of the risks it entails.

Ilham Tohti, a Uyghur economist, is serving a life sentence in China. He is held on separatism-related charges after his criticism of the Chinese government’s policies toward Uyghurs in Xinjiang. PEN International

This leaves academics engaging in fieldwork research in a particularly vulnerable position. It can even lead to a situation, like in my case, where their integrity and legitimacy as an academic is under question.

Indeed, I believe that this lack of information on academic practice exacerbated my situation. Trying to speak reason to the authorities holding me captive, and to those with the power to intervene diplomatically and politically on my behalf, went nowhere. And baseless accusations cast a shadow of doubt upon the legitimacy of my work.

Safety and security

For researchers and academics at all levels, the problem of misinformation has consequences extending to the very institutions to which they are affiliated. My experience demonstrates how bureaucracy-led universities are not equipping their students and staff with the appropriate skills and competencies needed to undertake their job in today’s world. Ultimately, effective instructions for fieldwork safety and security are lacking. Furthermore, as the technical capabilities of many states improve, there is an increased risk of deployed researchers falling victim to surveillance and unjust prosecution.

Another issue widely under-reported is that while researchers may be somewhat supported by their university, their human subjects are not. This leaves many academics, including myself, questioning whether it’s even possible or ethical to engage in fieldwork in the current age.

Niloufar Bayani, a researcher, conservationist, and scholar, was arrested in January 2018 on charges of espionage in Iran. She recently reported being subjected to torture. Twitter/@Omid_M

Having heard testimony from academics with diverse research backgrounds, it is abundantly clear that my experience was not isolated. Hundreds of scholars around the world are targeted and prosecuted for their research. Yet, while their cases are of great concern within the academic community, they continue to rest dormant in the public eye, the political arena and higher education boards.

If academics and universities are to continue to contribute to the generation of knowledge, then research practice and its risks must be acknowledged and respected. The freedom to research is paramount for knowledge creation. And if it is not protected, we risk being accomplices to those who wish to silence us.


Read more from our series on Academic Freedom.


Matthew Hedges, Doctoral Research Candidate in the School of Government and International Affairs, Durham University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

10 key technologies disrupting the GCC market

10 key technologies disrupting the GCC market

From artificial intelligence to autonomous vehicles, transformative science and technology have driven impactful change across the GCC countries in recent years, a report said. Trade Arabia in 10 key technologies disrupting the GCC market, elaborates on how the latest advances in technology are impacting the countries of the Gulf.

With regional governments now set to reduce oil dependency through policy and regulation change, the Industrial Revolution 4.0 and the phenomenon of the Internet of Things (IoT) is now rife among all sectors in the region, added the report from MEED, a leading business intelligence provider.

 Organizations are on board to make structural changes through the usage of advanced and innovative technology. But while many of the innovations that promise to shape the region in the coming years are still new, and sometimes experimental, others are widely known, even if not yet in common use.

MEED looks at 10 technologies set to transform the Middle East over the next decade.

Grid-scale batteries to enable energy diversification

Global investment in high-capacity batteries is transforming the market for renewable energy.  The large-scale adoption of alternative energy has long been hampered by the unreliable, inflexible nature of its major sources, the wind and sun. The problems caused by intermittent energy production can only be solved by developing effective storage solutions; batteries that can store energy at peak production times for later deployment.

A significant drop in the prices of lithium and vanadium – essential battery components – in addition to improvements in battery efficiency, are enabling large scale adoption of energy storage facilities.

Abu Dhabi’s recent launch of the region’s first Grid-Scale Battery Deployment and the world’s largest Virtual Battery Plant is indicative of the region’s commitment to diversifying its energy supply.

Digital payment – fintech

The initial caution of governments in GCC to digital payments and financial technology (fintech) is beginning to abate and the first online payments were made across the region in 2018, following a series successful trials of the technology that persuaded authorities to relax regulation. With limited access to banking facilities, an estimated 86 per cent of adults in the region (Reuters) do not have a bank account. This, coupled with an increase in the mobile phone capabilities makes the Mena market a real opportunity for fintech investment. Research company Mena Research Partners estimated the fintech market in the Mena region to be worth $2 billion in 2018 and it is expected to reach $2.5 billion by 2022.

Smart’ everything

There is a growing realisation that complex systems such as oil fields, electricity grids, building sites and entire cities can be managed more effectively if siloed data can be combined on a single platform. New remote sensor technology can provide critical real-time data, allowing managers to make quick, informed decisions and increasingly intelligent software is being developed to automate complex processes. Internet of Things (IoT), which is a convergence of technologies such as remote sensors, machine learning and real-time analytics, is central to the development of these smart, digital ecosystems.

Autonomous vehicles

The GCC has been a global frontrunner in the uptake of autonomous driving, with UAE leading the way. The Dubai Future Foundation in partnership with Dubai Roads and Transport Authority (RTA) launched the Dubai Autonomous Transportation Strategy which aims to make 25 per cent of Dubai transportation autonomous by 2030, saving $6 billion annually. The RTA is currently conducting tests to decide the winners of the Dubai World Challenge for Self-Driving Transport, which are focused on the provision of first/last Mile transportation.

5G supporting the new digital ecosystem

In May this year, Emirates Telecommunication Company, Etisalat, launched the region’s first 5G enabled smartphones. The new 5G networks transfer data 20 times faster than 4G, have a bigger capacity, are more reliable. This vital development is needed to support the emerging ecosystem of digital technologies including IoT, smart cities, cloud computing and autonomous vehicles. According to Globaldata, the number of mobile network subscriptions in the Mena region is expected to be 15.8 million by 2023.

Hydrogen fuel

Shift away from traditional fuel sources to free up crude oil for higher value products and export sees an increase in demand for alternative energy sources. One of the most promising alternative fuels is hydrogen, which can be produced using solar photovoltaic technology.  This will be showcased at Expo 2020 by the use of fuel-cell vehicles that run on hydrogen generated at a solar-driven hydrogen electrolysis facility at Mohammed bin Rashid Solar Park.

Using AI to make the most of VR and AR

Initially gaining popularity through the gaming industry, augmented and virtual reality (AR and VR) are increasingly being used for training, marketing and problem-solving. VR systems can have powerful applications when combined with artificial intelligence (AI). For example, it could be possible to develop a microscope that can highlight cancerous cells or the dashboard of a vehicle that can detect hazards and alert the driver using signals on the dashboard.

Electrification of transport

Electric Vehicles (EVs) potentially are among the most transformative of all emerging technologies, delivering a change as significant as the move from horse-drawn carts and internal combustion engines in the early 2oth century. While electric milk floats and golf buggies have been widely used since the middle of the 20th century, huge leaps forward in battery capacity and materials technology have brought EVs to the edge of becoming mainstream modes of transport.

Their benefits in terms of reducing carbon emissions and energy conservation could be huge. Technical challenges ranging from development of electricity charging infrastructure through to battery capacity and safety capabilities remain to be overcome however before EVs they will become our primary mode of transport.  

3D printing

By 2025, the global 3D printing market is expected account for an annual spend of over $20bn.The Middle East is recognising the potential of additive manufacturing, with Dubai leading the trend with its3D printing strategy, announced in April 2016, which set the ambitious target of all constructing 25 per cent of new buildings using additive manufacturing. The sectors that could see the most benefit from the technology are healthcare – for joints, teeth, medical and training equipment, aerospace, consumer manufacturing and construction.

Food security – Vertical farming and hydroponics

Increasing population, extreme climate conditions and political and economic instability are putting food security in the Middle East high on the political agenda. With the region importing over 50 per cent of its food, governments are looking to boost local production using soil-free methods of farming that are 70 per cent more water efficient than traditional methods and use fewer chemicals. New, vertical farming techniques that require less space can be adopted in urban areas to bring production closer to the consumers.

With these new technological trends disrupting the market, Meed has introduced the third edition of the MEED awards, assessing companies on their initiatives in becoming more technologically advanced. Powered by Parsons (strategic construction partner) and Acwa Power (official power & water partner) the MEED awards is due to close its submission deadlines by the end of this week. – TradeArabia News Service

Algeria’s Political deadlock and economic breakdown

Algeria’s Political deadlock and economic breakdown

The political impasse in which Algeria has been mired for more than seven months would result in a sharp economic slowdown in the short term. This Algeria’s Political deadlock and economic breakdown that the World Bank forecasters have reached is by any means comprehensive but could be read as some sort of alert.

By  Hakim Ould Mohamed in REPORTERS DZ of October 12, 2019.

The institution expects non-hydrocarbon sectors, as well as all oil and gas-related activity, to run through an air hole this year; which should have some unavoidable consequences on the country’s GDP growth. In effect, in similar way to other developing countries, it is expected to come down to 1.3% in 2019 from 1.5% the previous year.

Algeria's Political deadlock and economic breakdown

“Uncertainty policy is expected to lead to a slowdown in the non-hydrocarbon sector in 2019,” reads a World Bank report released last Thursday. The Bretton Woods institution has not failed to highlight the impact of the arrests of business leaders on investment morality grounds or lack of these, and more generally, on the economy. “Business leaders from various sectors were arrested in connection with corruption investigations, which has disrupted the economy due to sudden changes in the direction and supervision of these companies, as well as uncertainty over investment,” the same report said. Since the beginning of the crisis, a wave of arrests affected the business community, public institutions, banks and social bodies alike. This blocking situation had worsened over the weeks; appropriation sets did not meet, officials at the level of economic administration were careful not to take the slightest risk. That is to say how violent the shock wave was. The impact on the economy could be disastrous as the situation continues to worsen by the day. As such, the World Bank (WB) estimates that “the pre-election period also risks further delaying the fiscal consolidation process scheduled for 2019, increasing the budget deficit to 12.1% of GDP and increasing the risk of a more abrupt adjustment in the future.” For the WB, widening budget and current account deficits is almost inevitable. While the fiscal deficit would be unlikely to be reduced internally, “on the external front, the current account deficit is expected to widen to 8.1% of GDP, mainly due to a significantly larger trade deficit.”

 Investment is being impacted

 “As the course of political events is expected to have an impact on economic activity, it is also expected that more resources will be allocated to social measures, to the detriment of public investment spending,” the Bank predicts. The report, stating that “private sector activity and investment will be affected by political disruptions and an unfavourable business climate, as well as disruptions caused by delays in payment of workers in several industries.” This is the case, since the draft Finance Bill 2020 foresees a sharp decline in capital expenditure, to the tune of 20.1%, while operating expenses and social transfers are maintained as they are. WB experts are merely saying out loud what Algerian economists and operators are thinking, warning of a situation that could go along if solutions to the political impasse run out. “The delays at the end of the political impasse and political uncertainty could further damage the country’s economy, leading to increased imports and further dwindling foreign exchange reserves,” concludes the WB report. Moreover, macroeconomic indicators are unlikely to improve at any time under current political conditions.

 Economic growth to only 1.9% in 2020

 Moreover, against a background of falling capital spending and low morale among investors, the growth of the Algerian economy would be only 1.9% in the year 2020. A stagnation is due in particular to the “slow” growth of the hydrocarbons sector, combined with the contraction in economic activity, which has limited growth in non-hydrocarbon sectors, according to the WB’s economic monitoring report released on Thursday. “Growth in the hydrocarbon sector has been slow, with economic activity contracting by 6.5% and 7.7% in 2018 and the first quarter of 2019, respectively, partially off-sparing the effects of the slight increase in non-core growth 3.4% and 3.9% in 2018 and the first quarter of 2019, respectively,” the WB noted. The tiny increase in investment in the first half of the year (4.9%) was driven by public investment in construction, public works and hydraulics, as a result of the expansion of social housing programmes, the WB said. Furthermore, the institution believes that “the recent discovery of a new gas field suggests a rebound in gas production and exports, but only in the medium term, and if and only if the framework for investment in hydrocarbons lends it to it.” The World Bank is merely bringing water to the government’s mill, which has called the enactment of the new hydrocarbon law urgent.

Iraq protests expose the fallacy of the country’s democracy

Iraq protests expose the fallacy of the country’s democracy

Streets demonstrations in the vast and populous countries of the MENA region’s Algiers, Khartoum, Cairo and finally, Bagdad chasing some long-time running democratic awakening appear to be stalling. However, these capital cities of the so-called republics’ populations seem to be going through a quasi-general disenchantment with their respective establishments because of all the prospects for future development in political and security terms have become uncertain given this sudden but not surprising worsening regional situation. Like throughout all these countries, Iraq protests expose the fallacy of the country’s democracy. Technological advances in the world and their penetration in the MENA region could definitely be behind all these upheavals.

Whether these media as social or just digital distribution of news, they did help to connect citizens and build linkage to an unprecedented level. Government organisations always in desperate need of credibility fell short to keep up with how fast the region’s peoples demands of more democracy, etc. This article elaborates on the specifics of Iraq’s.

Iraq protests expose the fallacy of the country's democracy
Anger on the streets: protesters in al-Tayaran square in central Baghdad on October 4. Murtaja Lateef/EPA

Violent crackdown against Iraq protests expose fallacy of the country’s democracy

By Balsam Mustafa, University of Birmingham

When Muhanad Habib, a 22-year-old Iraqi from the Sadr City district of Baghdad, posted on Facebook in late September, he probably didn’t imagine that his demands for a better life and basic rights would be met with bullets.

It will be a huge and angry public revolution in Baghdad … We will take to the streets protesting … Enough silence about what’s going on in Iraq. We cannot just watch Iraq being destroyed when we have armies of jobless and poor.

This was how it all started. Angry youth from Baghdad took to the streets. Unaffiliated with any political party or with well-known activists, the protesters – the majority of whom were born in the late 1990s or early 2000s – despaired about any prospect for change in Iraq.

The crackdown by security forces that followed left more than 100 people dead and thousands more injured. Iraqi President Barham Salih condemned the crackdown in a televised speech on October 7, claiming that orders to shoot at the protesters weren’t made by the state or its apparatus. The interior ministry ordered an investigation into the deaths.

Yet, Salih’s statement raised questions about who is actually running the Iraqi state. And despite his and international condemnation, the crackdown continues on the ground.

Calls for a homeland

Endemic corruption, unemployment, flawed institutions and poor public services linger in Iraq and have prompted protests since 2011, including notably in Basra in 2018. The recapture of Iraqi lands from the grip of Islamic State (IS) gave many Iraqis hope that lessons would be learnt about the repeated failures which gave rise to IS, and that those in power would take sincere steps to reform. But that hope has been diminishing every day.

The most recent protests came in the wake of multiple smaller demonstrations by different groups, including PhD graduates, doctors and engineers in September 2019.

They followed government actions that caused widespread anger. Impoverished people were outraged at a recent state campaign to destroy unlicensed properties and market stalls across Iraq, leaving many homeless and jobless.

It also followed the removal of a key general, Abdul Wahab Al Saadi, from his position as commander of the Counter-Terrorism Service, followed by his demotion to a lower post at the Ministry of Defence. The marginalisation of a figure admired for his role in the military campaign against IS enraged many Iraqis.

The new generation want a homeland. “We want a respected homeland,” and “I am taking to the streets to get my right,” were among the slogans on display during the protests. “The issue is not about water or electricity, but about a homeland,” shouted another protester.

Violent crackdown

The immediate crackdown of the protests has surprised, shocked, and shaken Iraqis. The suppression turned a protest about anti-corruption and unemployment into an uprising against the status quo and what participants see as foreign interference, particularly from Iran.

Tear gas, live ammunition, and snipers were used to quell the protesters. As one protestor put it: “They did things to us they never did to IS. They beat and insulted us. They used live fire and grenades. What have we done? All what we are asking for are our rights and all people’s rights.” The protestor’s words were used as the opening of a new rap song titled “Iran’s tails” released in the wake of the crackdown by an Iraqi expat in solidarity with the demonstrators.

Iraq protests expose the fallacy of the country's democracy
The funeral in Baghdad of a protester allegedly killed by Iraq soldiers. Murtaja Lateef/EPA

The violent oppression and state’s authoritarian measures to cover up the carnage are reminiscent of the days of Baathist rule and former president Saddam Hussein’s oppression of a 1991 uprising. In 2019, such measures included an internet blackout across Iraq except in the Kurdistan region, curfews in Baghdad and other provinces in the south, and blocked roads leading to Tahrir square in Baghdad where demonstrators gathered. Comparisons were also made with IS, who also cut off the internet in Mosul when Iraqi troops were advancing to retake the city in 2016.

Offices of media agencies covering the protests were attacked and reports emerged of protesters, activists and journalists being threatened and arrested.

By disconnecting Iraqis from the outside world, the authorities in Iraq tried to control the circulation of videos that showed civilians killed in broad daylight. But they also pushed the narrative of Iran-backed political parties and officials: that “intruders” – an implicit reference to Baathists or actors backed by an external agenda – were responsible for riots. A similar narrative was echoed by Iranian media outlets to undermine the legitimacy of the protests, accusing foreign powers of being behind them, an indirect reference to the US, Israel and Saudi Arabia.

Despite the internet blackout, which remains partially in place, footage of the live shooting at the protestors and ambulances carrying the wounded were shared on social media as some Iraqi protesters resorted to innovative methods with the help of Iraqi expats to reveal the scale of the violence.

The heartbreaking scenes caused uproar among the Iraqi diaspora who protested in several countries around the world in solidarity. But for people inside Iraq, many still don’t know the scale of the atrocities as they haven’t been able to access social media sites.

The fallacy of democracy

Since the fall of Hussein’s regime in 2003, successive governments have failed to put an end to Iraqis’ grievances. Time and again, only empty promises were made, and superficial measures taken. The electoral system has helped to produce and perpetuate a hybrid form of kleptocracy, authoritarianism and kakistocracy – a government run by the worst, or most unscrupulous people. Armed groups, tribes, foreign powers and religious clergy have all maintained this system.

The latest protests may have been suppressed but they revealed that democracy in Iraq is nothing but a facade. What sort of democratic government kills its own people, taking away their hopes and dreams? And can it still be called legitimate? Reacting indifferently to the deadly crackdown of innocent people in Iraq, the world needs to at least recognise that the root causes of Iraq’s ills are in the post-2003 system itself.

Balsam Mustafa, Teaching Fellow, University of Birmingham

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Growth in Emerging Market and Developing Economies

Growth in Emerging Market and Developing Economies

Romain Duval and Davide Furceri, authors of this article that obviously elaborates on the currently so-called developing countries. It does not ignore that there is some differentiation between oil and/or other scarce natural resources and the non-exporters of the same. It might as well be talking about these two categories of countries but perhaps along with the character traits described in the image below. Why you might wonder. Simply because How To Reignite Growth in Emerging Market and Developing Economies as developed here, could well apply to all countries in the MENA region, perhaps worldwide not for the same reasons.

Growth in Emerging Market and Developing Economies
NPR quotes the Associated Press, which says that the term ‘developing country’ is more appropriate than Third World when referring to the economically developing nations of Latin America, Africa, and Asia.

Let us, in the meantime, read what they say.

Growth in Emerging Market and Developing Economies
(photo: Kacper Pempel/Reuters/Newscom)

Emerging markets and developing economies have enjoyed good growth over the past two decades. But many countries are still not catching up with the living standards of advanced economies.

At current growth rates, it would take more than 50 years for a typical emerging market economy to close half of its current income gap in living standards, and 90 years for a typical developing economy.

Our research in Chapter 3 of the October 2019 World Economic Outlook finds that implementing major reforms in six key areas at the same time—domestic finance, external finance, trade, labor markets, product markets, and governance—can double the speed of income convergence of the average emerging market and developing economy to the living standards of advanced economies. This could raise output levels by more than 7 percent over a six-year period.

Structural reforms can yield sizable payoffs.

More room for reforms

Policies that change the way governments work—known as structural reforms—are difficult to measure. They often involve policies or issues that are not easy to quantify, such as job protection legislation or the quality of supervision of the domestic banking system.

To address this, the IMF recently developed a comprehensive dataset covering structural regulations in domestic and external finance, trade, and labor and product markets. The data cover a large sample of 90 advanced and developing economies during the past four decades. To the five indicators, we added the quality of governance (for example, how countries control corruption) from the World Gov­ernance Indicators.

The new indicators show that, after the major wave of reforms in the late 1980s and—most importantly—the 1990s, the pace slowed in emerging market and developing economies during the 2000s, especially in low-income developing countries.

While this slowdown reflects the prior generation of reforms, as in advanced economies, there remains ample room for a renewed reform push, particularly in developing economies—notably, across sub-Saharan Africa and, to a lesser extent, in the Middle East and North Africa and the Asia-Pacific region.

Reforms can boost growth and living standards

Based on our empirical research of reforms in 48 current and former emerging markets and 20 developing economies, we find that reforms can yield sizable payoffs. But these gains take time to materialize and vary across different types of regulations. For example, a domestic finance reform of the size that took place in Egypt in 1992 leads to an increase in output of about 2 percent, on average, six years after implementation. We get a similar result for anti-corruption measures, whose effects are sizable in the short run and stabilize at around 2 percent in the medium term. In the other four reforms areas—external finance, trade, product markets, and labor markets—the gains are about 1 percent six years after the reform.

For the average emerging market and developing economy, the results imply that major simultaneous reforms across all six areas considered in this chapter can raise output by more than 7 percent over a six-year period. This would increase annual per capita GDP growth by about 1 percentage point, doubling the average speed of income convergence to advanced-country levels. Model-based analysis—which captures the longer-term effect of reforms and provides insights on the channels through which they affect economic activity—points to output gains about twice as large as the empirical model over the longer term (beyond 6 years).

One channel through which reforms increase output is by reducing informality. For example, lowering barriers to businesses’ entry in the formal sector encourages some informal companies to become formal. In turn, formalization boosts output by increasing companies’ productivity and capital investment. For this reason, the payoff from reforms tends to be larger where informality is pervasive.

Getting the timing, packaging and sequencing right

Some reforms work best when the economy is strong. In good times, reducing layoff costs makes employers more willing to hire new workers, while in bad times it makes them more willing to dismiss existing ones, magnifying the effects of a downturn. Similarly, increasing compe­tition in the financial sector at a time of weak credit demand may push certain financial intermediaries out of business, further weakening the economy.

In countries where the economy is weak, governments may prioritize reforms—such as strengthening product market competition—that pay off regardless of economic conditions, design others to alleviate any short-term costs—such as enacting job protection reforms now with a provision that they will take effect later. These reforms can also be accompanied with monetary or fiscal policy support where possible. 

Reforms also work best if properly packaged and sequenced. Importantly, they typically deliver larger gains in countries where governance is stron­ger. This means that strengthening governance can support economic growth and income convergence not just directly by incentivizing more productive formal enterprises to invest and recruit, but also indirectly by magnifying the payoff from reforms in other areas.

Finally, to fulfill their promise of improving living standards, reforms must be supported by redistributive policies that spread the gains widely across the population—such as strong social safety nets and programs that help workers move across jobs. For reforms to be sustainable and therefore effective, they need to benefit not just some, but all.

About the IMF Blog

IMFBlog is a forum for the views of the International Monetary Fund (IMF) staff and officials on pressing economic and policy issues of the day. The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.