A lack of access to finance is by some margin the main concern of Egyptian businesses, however, 24% of respondents most frequently consider tax rates to be the main obstacle to their companies, according to a report.
The European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), and the World Bank (WB) published a joint report recently titled ‘Unlocking Sustainable Private Sector Growth in the Middle East and North Africa’ (MENA). The report analyses constraints on productivity growth and limited accumulation of factors or production in MENA’s private sector.
The report said that almost 90% of Egyptian companies in need of a loan are credit-constrained, compared with 56% in Lebanon and 68% in Jordan. Both Egypt and Jordan have a higher share of voluntarily autarkic firms than the average country with similar GDP per capita.
High autarky rates of around 50% in Egypt, Jordan, the West Bank, and Gaza are offset by the comparatively low rates prevailing in Lebanon, Morocco, and Tunisia, the report pointed out.
The report added that 38% of respondents see that tax rates are an obstacle for Tunisian businesses, meanwhile, 28% of respondents in Jordan are of the same opinion. Moreover, Moroccan businesses cite corruption, tax rates, and tax administration with almost identical frequency as the top obstacle.
Furthermore, GDP per capita has grown by only 0.3% a year in MENA since the 2010s. That compares unfavourably with rates of 1.7% on average in middle-income countries and 2.4% in the developing economies of Europe and Central Asia, the report noted.
The report also highlighted that competition from informal enterprises results in slower growth of formal companies in MENA. Moreover, the data shows that companies constrained by competition from informal firms experience lower employment growth.
“Compared with the average company in the sample, constrained firms experience a reduction of 1.6 percentage points, as opposed to the 0.6 percentage point increase for firms that do not face competition from the informal sector. Firms constrained by competition from the informal sector also have a labour force characterised by a lower share of skilled workers and a higher share of temporary workers, compared with the average firm in the sample,” the report read.
As a share of GDPs, MENA economies tend to import more goods than they export. All six countries had a negative trade balance in 2019. Imports represented more than 30% of the GDPs of these countries — with the exception of Egypt — which is above the average of upper-middle-income and lower-middle-income benchmark economies, which are around 20% of GDP. At the same time, exports accounted for about 18% of GDP, in line with the average of lower-middle-income and upper-middle-income countries.
Furthermore, most firms in the region engage in trade, however, the breakdown of companies’ trading profiles outlines the import dependence of most of the countries and areas, particularly Jordan, Lebanon, the West Bank, and Gaza.
This may reflect the relatively small size of the economies or the fact that firms are unable to find inputs in the domestic market — for example, due to policies overvaluing local currencies. Additionally, the share of “non-traders” is particularly large in Egypt and Morocco, which is in line with the relatively larger size of the domestic economy.
The report is based on the MENA Enterprise Survey that was conducted between late 2018 and 2020 on over 5,800 formal businesses across Egypt, Jordan, Lebanon, Morocco, Tunisia, the West Bank, and Gaza.
“The spill overs from the war in Ukraine add to structural vulnerabilities in the region. The prospects for global financial tightening, persistently high energy and food prices, and concerns for food security come on top of concerns related to weak economic growth and rising debt levels,” said EIB Chief Economist Debora Revoltella.
“When responding to the new shock, MENA countries need to tackle the main structural bottlenecks affecting the region. Reforms that lower regulatory barriers, tackle informal business practices, promote competition, and facilitate innovation and digitisation are crucial for achieving sustainable economic growth and improving resilience to future shocks.”