The European Investment Bank (EIB) has published a series of Working Papers based on the findings of their MENA Enterprise Survey Report. The series covers subjects covering, inter alia, corporate ESG responsibility practices, green investment, digitalisation, MSMEs and human capital in Africa. These papers are in support of the report: Unlocking sustainable growth in the Middle East and North Africa private sector.
The Enterprise Surveys, conducted by the EIB, EBRD and the World Bank, provide insight into what lies beneath the region’s relatively slow growth, with a focus on the reasons for stagnating productivity and inadequate accumulation of human and physical capital in the private sector.
Volume 1: Access to finance in the Middle East and North Africa
The Middle East and North African region’s comparatively deep banking sectors are not adept at providing access to finance for a broad cross-section of mainly small and medium-sized companies, according to the 2019 round of Enterprise Surveys. The ability of businesses in Egypt, Jordan, Lebanon, Morocco, Tunisia and the West Bank and Gaza to access finance has not improved since the previous survey round in 2013.
Data from the surveys also reflect the low aggregate investment rates in the region. The share of firms investing in fixed assets has declined compared to the previous survey round and is now lower than in peer economies. In addition, some 7.5% of firms in the average MENA country have experienced monetary losses due to extreme weather events in the three years preceding the survey.
The Enterprise Surveys, conducted by the EIB, EBRD and the World Bank, provide insight into what lies beneath the region’s relatively slow growth, with a focus on the reasons for stagnating productivity and inadequate accumulation of human and physical capital in the private sector.
Please read Volume 1 here.
Volume 2: Jobs, access to credit and informality in the Middle East and North Africa
The economic environment in the Middle East and North Africa (MENA) region is characterised by a long-lasting stagnation in job creation. Over the period 2016-2019, employment growth was about 1.4%, well below the performance of lower-middle- and upper-middle-income countries. One crucial determinant of employment growth is finance, with recent evidence documenting the positive effect of access to credit on employment and investment. Yet, an obstacle to the virtuous role of the financial system in the region is the disconnectedness of private firms from the banking sector.
Another important feature of MENA economies is informality. Data from the Enterprise Surveys show that 29% of MENA firms say they are exposed to competition from informal firms, which poses a possible threat to the proper functioning of the economy and to the operation of formal firms.
Please read Volume 2 here.
Volume 3: The upside of digitalisation after COVID-19: Firm-level evidence on productivity and factor gains in developing countries
The COVID-19 crisis has sparked profound concerns about the economic effects of the pandemic in developing countries. These concerns are associated primarily with the impact of COVID-19 on sales, productivity and employment. But the medium- and long-term impact will depend mainly on the speed of digitalisation and the economic gains developing countries can obtain from it. Digitalisation helps economic activity, as the COVID-19 crisis has made amply clear, but not everyone has benefitted equally from the arrival of digital technologies. Huge disparities still exist across and within countries. While more than half of the world’s population now has access to the internet, the penetration rate in the least developed countries is only 15%.
The benefits of adopting digital business solutions can be substantial for companies. The transfer of information and data over the internet helps reduce production costs and therefore expands the demand for a firm’s goods and services. This, in turn, increases factor demand as well. Reductions in search costs enable buyers and sellers of products or services to get better access to the other side of the market by increasing the speed or efficacy with which firms find workers or input suppliers.
Please read Volume 3 here.
Volume 4: Small and medium enterprises in emerging economies: The Achilles’ heel of corporate ESG responsibility practices?
The actions of private small to medium enterprises in emerging economies to foster sustainability and green growth significantly lag in the transition to a more sustainable business environment and large gaps persist, according to data from the Enterprise Survey. Among emerging economies, those in the Middle East and North Africa (MENA) region are among the worst performers.
Larger companies in the MENA region show better environmental, social, and governance performance than small and medium-size enterprises in other regions. But smaller firms in the Middle East and North Africa show extremely weak performance in many aspects, even when controlling for the relative level of economic development. The weakness of environmental, social and governance practices among firms in the region is due to both environmental and social factors (with large gaps in female participation in the workforce and management). This calls for urgent policy action to address these weaknesses and exploit the region’s full potential.
Please read Volume 4 here.
Volume 5: Beyond political connections: A measurement model approach to estimating firm-level political influence in 41 economies
All over the world, companies exert political influence. While this influence varies in its intensity, form and effectiveness, it is widely understood to be in competition with the interests of other firms, groups and the public at large. Political influence is greater in economies with poorer governance but more disperse in those with better governance. Within economies, higher influence is associated with a higher likelihood of reporting a small number of competitors, higher sales and lower labour inputs relative to sales.
Most analyses show large gains to firms with strong political connections. But while these connections may result in influence, that influence may be dampened or enhanced by particular combinations of other political interactions, including through legal channels, such as business associations, or through generally illegal ones, like bribery.
Political influence is a social construct that cannot be directly observed. Using an original, firm-level dataset from 41 diverse economies (mainly in Europe, Central Asia, the Middle East and North Africa) we try to understand how firms engage in interactions with public officials to gain influence.
Please read Volume 5 here.
Volume 6: Trade and innovation in the Middle East and North Africa
International trade is a key determinant of the competitiveness and innovation of firms in the Middle East and North Africa. In Egypt, Jordan, Lebanon, Morocco, Tunisia and the West Bank and Gaza, firms that trade in international markets tend to innovate more, and trade grows faster when the firms invest in innovation.
Trade with developed economies and access to information and know-how through participation in international markets can help firms in the Middle East and North Africa catch up with other regions and close the innovation gap. Improving customs and trade regulations can increase access to international markets to a larger share of firms.
Please read Volume 6 here.
Volume 7: Management practices and the partial government ownership of firms in the Middle East and North Africa
Well-managed firms are more productive, have higher operating profits, are more outward oriented and invest more in research and development. But company ownership also plays a role. Evidence from the Enterprise Surveys points to a negative relationship between partial government ownership and management practices in the Middle East and North Africa, where there is a high ratio of state-owned firms and where political connections play an important role in business management.
To improve managerial practices, firms in the region must first disentangle themselves from government ownership. Management training and consultancy hold promise, but as long as governments distort incentives in the region, these cannot be fully effective.
Please read Volume 7 here.
Volume 8: The human capital of firms and the formal training of workers: The case of firms in the Middle East and North Africa
Investment in human capital through company-specific employee training can be rewarding for firms and their workers. By providing their employees with necessary skills, companies can improve their performance, increase innovation and raise their level of competitiveness. Through retraining, businesses can update their workers’ skills in the fast changing world of digitisation and automation, especially in the context of an ageing workforce in advanced economies.
However, data from the Enterprise Surveys across 35 economies in Europe and Central Asia and the Middle East and North Africa (MENA) region show that investment in formal training across companies has been low. On average, only 39% of medium and large firms provide formal training in these regions. For Egypt, Jordan, Lebanon, Morocco, Tunisia and the West Bank and Gaza the figure is lower, with 29 % of percent formal medium and large businesses providing formal training.
The proportion of university-educated workers is positively correlated with formal training in both regions, but the finding is more robust for the Middle East and North Africa. Increasing university education in the workforce in the MENA region may incentivize firms to invest more in their employees and improve the workforce by retraining and updating skills.
Please read Volume 8 here.
Volume 9: Green investment by firms: Finance or climate driven
Good management practices positively affect companies’ sustainable transition strategies. Companies that are more aware of the effects of climate change and of the various existing measures to tackle them are companies that engage the most in mitigation measures. Another important determinant for adopting mitigation measures is access to finance. The more financially constrained firms are, the less likely they are to pursue mitigation measures to reduce energy costs and their carbon footprint.
Based on a sample from the Enterprise Survey of almost 18 000 firms in 30 economies in Europe and Central Asia and the Middle East and North Africa, firms in these regions invest considerably less in sustainability measures compared to advanced economies located in the European Union and the United States.
In the Middle East and North Africa, high quality management practices are a more important factor in companies’ decision to make green investments than access to finance, according to the survey data.
Pease read Volume 9 here.