Realising Mena region’s potential depends on navigating risks, much-needed reforms

The global economy is facing heightened uncertainty, clouding economic forecasts.For instance, growth in the Middle East and North Africa (Mena) averaged a modest 1.9% in 2024.And Mena growth is forecast to moderately accelerate to 2.6% this year and 3.7% in 2026, according to World Bank in its recent estimates.These forecasts, however, are shrouded in uncertainty, given the potential impacts of changing trade dynamics on global growth, inflation, and oil markets.Conflict has dialled back development across the region, and the effects will remain for a long while after, compounding a history of chronic low growth.The region, barring the GCC, has low standards of living, with consumption per capita at only 19% of the frontier.Low total factor productivity accounts for between a third and a half of this gap. A dynamic private sector is essential to close it.Businesses can fuel growth, generate jobs, improve livelihoods and serve as an engine of innovation in the economy. But overall, the private sector in Mena is not dynamic.Labour productivity growth is largely declining across the region. Few firms invest and innovate. There is little entry into and exit from markets.Moreover, a divide persists between a small formal private sector and a large informal sector. Notwithstanding increased schooling, with lower secondary education completion rates averaging around 70%, the region (with the exception of the GCC) has long underused human capital.Women are largely left out of the labour market, in Mena region outside of the GCC. As a result of these challenges, the private sector in Mena is ill prepared to deal with shocks such as conflict and extreme weather events, although there are hints that businesses adapt in the face of adversity, the World Bank noted.Shifting Gears explores the critical role of the private sector in driving growth, creating jobs and spurring innovation. Stronger growth in the region has been held back by the absence of a thriving private sector.To boost the performance of the private sector, the World Bank suggests governments in the region may need to rethink their role. Promoting competition in markets, levelling the playing field for private and state-affiliated firms, and fostering a business-friendly environment could go far toward unleashing the growth potential of the region.Embracing data openness and evidence-based policymaking could guide the path forward, including the constant evaluation of industrial policy, which is a topic of debate among policymakers and economists around the world.Businesses themselves can build capacity by improving their management practices. At the same time, harnessing the untapped talent of women entrepreneurs and workers could foster growth."The region has long underused human capital. Women are largely left out of the labour market. Businesses can find more talent by attracting women leaders, who in turn will hire more women,” said Ousmane Dione, World Bank Vice-President for the Middle East and North Africa."Closing the gender employment gap could substantially boost income per capita by around 50% in a typical Mena economy.”Both governments and businesses play complementary roles in developing a more dynamic private sector. Governments in the region can boost the performance of firms by promoting competition in markets, improving the business environment, and investing in data collection and access."A dynamic private sector is essential to unlocking sustainable growth and prosperity in the region,” added Roberta Gatti, World Bank Chief Economist for the Middle East and North Africa."To realise this potential, governments across the region must embrace their role as stewards of competitive markets.”Businesses themselves can build capacity by improving their management practices. Harnessing the untapped talent of women entrepreneurs and workers could foster growth.The report contends that a brighter future for the Mena private sector is within reach if governments rethink their role and firms effectively invest and harness talent.