Balance shifts to private sector in Bank Group support for MENA
19 September 2007
In 2007, IFC financing in the Middle East and North Africa region exceeded lending from IDA and IBRD combined. As the Bank Group heralds high growth in MENA and pumps money to the private sector, equity and employment challenges loom large.
While the Bank’s press releases earlier this month highlighted unprecedented economic growth in the Middle East and North Africa (MENA), they neglected to mention how this growth is distributed across the region and within countries. Average unemployment rates, though down slightly from previous years, remain over 10%. Meanwhile, the portion of the working-age population that is actually employed is the lowest in the world, at 47%.
The Bank’s 2007 report “Economic Development and Prospects: Job Creation in an Era of High Growth" provides more details:
“Between 2000 and 2005, the region’s aggregate unemployment rate fell from 14.3 to 10.8 percent of the labor force…But not all of the news is good. Although unemployment has come down in eight of the twelve countries for which data are available, it is stagnating in Jordan and rising in Kuwait and the UAE [United Arab Emirates], albeit from very low levels. Political instability has pushed up unemployment rates in WBG [West Bank/Gaza], which, together with Iraq, has the most severe unemployment problem in the region.”
Given demographics in the region, the low levels of employment among youth are particularly troubling and suggest challenges ahead.
Growth is uneven across the region, with resource-rich countries growing far faster than other countries. The region’s per capita growth rates also still lag behind other developing regions in the world, except for sub-Saharan Africa and Latin America and the Caribbean.
Total World Bank Group commitments to MENA for 2006-2007 reached $2.6 billion, up from nearly $1.8 billion in FY 2006. However, the bulk of this increase came from International Finance Corporation (IFC) financing for the private sector, not from International Development Assistance (IDA) and International Bank for Reconstruction and Development (IBRD). World Bank (IDA and IBRD) lending to the region actually decreased from $1.7 billion in FY06 to $1.14 billion in FY07. IFC surpassed the Bank in its MENA operations, providing $1.4 billion, much of it for financial sector investments and infrastructure projects. Perhaps not surprisingly, two of the key areas in which the Bank concentrated its lending and advisory operations were promotion of the private sector and support for management of infrastructure projects.
While the magnitude of the Multilateral Investment Guarantee Agency’s (MIGA) involvement in the region still pales in comparison to that of the Bank or IFC (projects in MENA make up just over 5% of MIGA’s overall portfolio), this past fiscal year saw some “firsts” for MIGA.
“During FY07, the Board approved support for our first Sharia-compliant deal, which we expect to sign sometime this Fall,” said Yukiko Omura, the Executive Vice President of the political risk insurance agency.
Coupled with IFC’s increased involvement in post-conflict countries, MIGA’s foray into “Sharia-compliant” deals suggests that there are few limits on where the Bank’s private sector arms will go. Many are watching where they’ll head next.
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