Cross-Country Comparative Analysis of Enterprise Productivity in MENA Region: An Empirical Assessment

FEM35-07 | March 2013

Title

« Cross-Country Comparative Analysis of Enterprise Productivity in MENA Region: An Empirical Assessment »

By

MAS, Palestine Economic Policy Research Institute

Contributeurs

Yousef Daoud, Birzeit University, Palestine A.Khalid Sekkat, Université Libre de Bruxelles, ERF and FEMISE, BelgiumWith Contribution ofIsabel Sultana Cassar, EMCS, Malta

Note :

This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Summary :

With Small and Medium Size Enterprises (SMEs) amounting to a high percentage of the total enterprises, these significantly contribute towards the economic development of countries by being a driver of innovation.  However, SMEs are facing increased competition from new markets and in order to survive these have to improve their competitiveness, mainly by enhancing productivity.Over the years empirical literature has investigated the linkages between productivity and the different contributors to productivity.  In this regard, literature splits these determinants into two groups.  The first group constitutes determinants on which the firm has control.  According to literature, a firm can increase productivity through restructuring and adopting best practices, and investing in training and information technology.  The second group constitutes determinants which are beyond the firm’s control and these factors relate to the environment in which the firm operates, including competition and regulation.An analysis of productivity across the comparator countries shows that the productivity of SMEs in Palestine is low.  Egypt like most MENA countries has low levels of productivity which has been attributed to the adverse investment climate.  Different studies conducted in Morocco suggest that, training programs contribute positively towards labor productivity in subsequent years (Sekkat, 2011) sectoral level policies (such as the upgrading of technology within the manufacturing industry) are more effective at enhancing productivity (Chemingui, 2005); increasing market demand attracts firms to the market and that in periods of economic downturn the surviving firms experience enhanced productivity (Achy and Sekkat, 2010).  In Belgium the main contributor towards increased productivity was capital deepening (Biatour and Kegels, 2008).Using a Cobb-Douglas production function, labor productivity and Total Factor Productivity (TFP) according to manufacturing activity and firm size were computed.  The analysis shows that Belgium has the highest productivity levels in almost all the activities considered.  However, when focusing on TFP, the MENA countries exhibit larger figures.  The average TFP is highest in the case of Egypt.  The productivity of larger firms compared to that of smaller firms is higher in the case of Morocco and Egypt.An econometric analysis was carried out which showed that there are difference between the labor productivity of SMEs and larger firms.  It is also evident that labor productivity differences between smaller and larger firms depend on the industry.  Indeed, whenever such differences exist, SMEs tend to be less productive than larger firms within the same industry.  Furthermore, it also seems that differences in productivity also depend on the country’s characteristics.  Further analysis showed that productivity differences depend on both the industry and the country.  It is evident that SMEs in the South tend to exhibit lower levels of productivity irrespective of the industry, whereas in the North discrepancies in productivity can be either positive or negative depending on the industry.  From the analysis carried out, it seems that the main determinants of productivity are:  the age of the firm (morocco only), the share of exports in a firm’s output, the intensity of competition within an industry and the technological intensity within an industry.From the above results, a number of recommendations can be put forward in order to enhance SMEs productivity.  Firstly, due to the contribution of competition towards productivity, competition policy should be enforced.  Secondly, reforms should be implemented to make it easier for SMEs to access capital.  Thirdly, effective export strategies should be implemented.