Fostering Growth in the Middle East and North Africa
Chapter 5: MENA Countries, the Market Economy and the Environment for Private Sector Development
A market-led economy is one largely driven by the private sector with a minimal role for government in economic activity, except as regulator and facilitator, and intervening only where there are clear market failures (World Bank 2005f). The key elements in transition to a market economy include privatization of state-owned enterprises (SOEs); creating a market-friendly business environment by reducing rules, administrative burden and costs, promoting competition and limiting monopolistic behaviour; fostering a viable financial sector that channels resources to productive investments (liberalization); stimulating a willing and able cadre of entrepreneurs to take up the supply response with confidence that investment climate improvements are permanent; and openness to trade that will allow global integration. Actions in these areas are believed to contribute to a stronger, more vibrant private sector. Although the Middle East and North Africa (MENA) region has made progress in implementing market economy reforms, the World Bank (2007b) describes it as among the least business-friendly in the world, with burdensome and costly procedures that thwart business development and a broad range of practices hindering the full emergence of the private sector. Key sectors in many of the countries remain closed to competition due to high levels of industry concentration (Sekkat 2010) and regulatory restrictions. Overall progress on service sector reform, including liberalization of financial services, transport, telecommunications,1 power and water falls below that of other economies in transition (World Bank 2007b). In spite of evidence that direct engagement of the state in the productive sector has serious negative...
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