The Day after Tomorrow
manufacturing firms and their managers. Firms are almost 10 years older than the average in Eastern Europe and East Asia, and managers on average are seven years older than in these two regions. This disparity occurs despite MENA having one of the youngest populations in the world. In some cases, this reflects dominant and connected firms using a privileged position to limit competition. The average MENA manufacturing firm faces close to six times fewer competitors in its domestic market compared to the average firm in Eastern Europe. Private sector performance has been subdued due to a variety of factors, critical among which are issues surrounding the quality of reforms in the region. This is captured by the low private sector investment response to past reform in the region. As shown in figure 22.2, private investment across MENA increased by a modest 2 percentage points in response to the reforms. Compare this to a private investment response to similar reforms in other regions of more than 10 percentage points in East Asia, 7 in South Asia, and 5 in Latin American economies. Evidence shows that investment response has been dampened by weak and uneven implementation of reforms and lack of enforcement by institutions whose transformation lags behind policy change. Too many would-be entrepreneurs across the region still believe that the key to success is how connected or how privileged they are—instead of how creative, persistent, and competitive. World Bank enterprise surveys show that 60 percent of business managers do not think that the rules Figure 22.2 Reform Episodes and Private Investment Response, Middle East and North Africa 20 private investment (% of GDP)
382
15 10 5 t–10
t–15
Latin America Source: World Bank 2009a.
reform t–5 5-year time intervals South Asia
t+5 East Asia
t+10 MENA