Tag Archives: femise

The determinants of export performance of firms in selected MENA countries

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In this paper we study the determinants of export performance of firms in selected MENA countries jointly and separately and compare them to the performance of firms from Central and Eastern European (CEE) countries.

The analysis is based on information on individual firms contained in the BEEPS V data base, and covers the period of 2011-2014. We estimate the probability of exports controlling for country and sector specific effects using the probit model. We find that in both groups of countries similar variables affect firm export performance.

Our empirical results obtained for the MENA and CEE countries indicate that theprobability of exporting is positively related to thelevel of productivity, firm size, spending on research and development, the share of university graduates in productive employment and the internationalization of firms. State ownership and the perception of corruption by firms are mostly not statistically significant.

The results obtained for the two groups of countries are statistically not very different, but enough to have some policy implications while results for particular countries and sub-groups of countries reveal a large degree of heterogeneity.

This paper is organized as follows. In Section 1 we survey the relevant literature on the determinants of export performance. In Section 2 we describe the research methodology and the dataset. In Section 3 we report our empirical results. Finally, the last section summarizes and concludes with policy guidelines and directions for future research.

Education and Intergenerational mobility of women in Arab countries

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What is the relationship between gender inequalities in education and the intergenerational mobility of women in countries of the southern Mediterranean shore? In a FEMISE report entitled “Inequality, Intergenerational Mobility of Women Educational Attainment and Inclusive Policies in Arab Countries”, FEMISE experts stress the link between inequality and social immobility.

Etudiants marocains. Photo Marie Pierre Vega.

Photo Caroline Garcia.

Gender inequalities in education and schooling are decreasing in countries of the southern shore of the Mediterranean, even though the improvement in the level of schooling is more important for men than for women, as found by FEMISE researchers of Al Akhawayn University in Morocco and the Bucharest Academy of economic studies in their report (FEM41-01) « Inequality, Intergenerational Mobility of Women Educational Attainment and Inclusive Policies in Arab Countries ».

Intergenerational mobility allows a person to change his/her social position in relation to that of his parents. Thus, the report compares inequality and intergenerational mobility of women in Arab countries compared to that of Central and Eastern European countries. In all countries, researchers find a link between the level of inequality and intergenerational immobility. This concept is called “the Gatsby curve”. Specifically, the higher the inequalities, the more the social situation remains “frozen” from one generation to the next. Few Arab countries see their children reach a higher level of education compared to that of their parents.

Despite a reduction in inequalities and a growing feminization in the field of education, researchers do not see any real progress on the labor market of Arab countries because of rigidities that penalize all women, whether they are employees or business creators.

What recommendations to encourage intergenerational mobility?

“Unemployment can become a real barrier to change,” stated Ahmed Driouchi, one of the authors of the report. This economics professor at Al Akhawayn University in Ifrane, Morocco, confirms that women are more affected than men. Arab countries will have to create significantly more jobs than at present to simply succeed in stabilizing the unemployment curve.

The report calls on Arab countries to promote intergenerational mobility, particularly among women. To achieve this, Professor Ahmed Driouchi points out many tools such as “schooling, the fight against educational wastage, transportation, housing, school canteens, student grants.” He stresses that other instruments such as evaluation in relation to international standards (TIMSS, PISA ..), as well as student exchanges or joint activities with EU countries can allow new generations to access higher levels of education than their parents.

The report is available (in english) and can be accessed at the following link.
Article produced in partnership with Econostrum.

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Gérard Tur

Tourism in the Mediterranean, a sector of two-speeds

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Since the Arab Spring and the wave of terrorist attacks, travellers have avoided the Maghreb and Mashrek countries in favor of safe destinations in the northern Mediterranean. In their latest report, Femise economists draw an overview of the situation and provide a roadmap for a sector considered vital for the southern economies. Hotels should adopt new management practices and modify their marketing approaches. However, the main recommendation is targeting new clients. What if the Maghreb region became the new destination for Chinese tourists ?

Plage de l'hôtel Rammada Plaza à Gammarth Tunisie (photo : F.Dubessy)

Hôtel Rammada Plaza at Gammarth, Tunisia (photo : F.Dubessy)

With 250 million tourists spending $ 200,000 million a year, the Mediterranean is among the most popular destinations in the world. A pot distributed unevenly since the Jasmine Revolution in 2011.

In the first few years travellers kept visiting Tunisian beach resorts, however, the jihadist massacre of tourists in 2015 dealt a blow to an activity which accounted for 10% of the country’s GDP. Wealth generated by tourism melted as snow in the sun, falling to only 7% of Tunisia’s GDP.

“Seven million tourists have been diverted from North Africa since 2010. Egypt has lost five million tourists and Tunisia two and a half million,” notes the Femise report, published in January 2017, coordinated by Doaa M. Salman Abdou professor in Cairo (October University for Modern Sciences and Arts, Egypt) in collaboration with Andrés Artal-Tur professor at Valencia (Technical University of Cartagena & Institute of International Economics (IEI-UV), University of Valencia, Spain).

Conversely, Spain, Italy, Greece and Portugal, considered as safe havens, register record levels of attendance. In 2011, tour operators had diverted 12 million trips to Spain. At the beginning of 2016, the Iberian Peninsula showed a record increase: + 13.4% for the Balearic Islands, + 5.1% for Continental Spain, + 6.4% for the Canary Islands and above all + 40% for Portugal.

Increased presence of Asian tourists

This is a phenomenon that scares investors and aggravates unemployment. Entitled “Winners and losers in the tourism and hospitality industry along the transition process”, the Femise (FEM41-04) report advocates a number of ideas for increasing tourism-related revenues.

While the return of political stability and peace seems vital, Femise also suggests to put emphasis on the neighborhood policy and intensify training for hotel managers in the south of the Mediterranean.

Efforts have been made in Tunisia and Egypt to attract international tourists but with limited success. For the time being Europe is capturing these flows. “Growth in the number of visitors from Asia and North America to European destinations will continue in the future”. The report concludes that “ the Mediterranean ought to maintain a high level of competitiveness”.

The report is available (in english) and can be accessed at the following link.

 

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Pr. Patricia AUGIER, new President of the Scientific Committee of IM

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Institut de la Méditerranée (IM) is pleased to announce that starting January 2017 Pr. Patricia AUGIER is the new President of the Scientific Committee of IM. Pr AUGIER was elected by the IM Board of Directors and succeeds Pr. Jean-Louis REIFFERS.

Pr AUGIER is already Coordinator and President of the Scientific Committee of FEMISE since September 2015 and Professor at AMU (Aix-Marseille Université) and member of AMSE (Aix-Marseille School of Economics). Her areas of expertise include issues of Development, International Trade and Firms productivity.

Institut de la Méditerranée warmly thanks Pr. REIFFERS for the scientific vision, commitment and for all the things he brought and helped achieve for IM during two decades. Being always motivated and interested by the development of the Euromed region, his experience, ideas and know-how will always be of great utility for IM.

We are also very pleased to entrust the scientific direction to Pr Patricia AUGIER who will bring new orientations for this new phase of IM.

Winners and Losers in the Tourism and Hospitality Industry along the Transition Process

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Executive Summary FEMISE research Project FEM 41-04

Along the present “Executive Summary” we synthesize the main findings of FEMISE Research Project FEM 41-04, on “Winners And Losers In The Tourism And Hospitality Industry Along The Transition Process: Evidence From South And North MED Countries”, corresponding to the FEMISE research program 2015/2016.

Tourism is the backbone for many Mediterranean (MED) countries, providing a pivotal source of foreign currencies, attracting investments, absorbing labour force and sharing in the countries development. Tourism is also a sensitive industry based on security and safety issues when attracting tourists from all over the world. In 2015, the Mediterranean region was the first world tourism destination with more than 250 million people in arrivals and 200,000 million dollar in receipts, due to the presence of the leading North shore destinations (France, Spain, Greece and Italy) and South-East shore countries (Egypt, Turkey and Tunisia) (UNWTO, 2016).

At their very beginning, in years 2010 and 2011, the media started to define the Arab Spring revolutions as peaceful protest movements that are requesting to correct imbalances, corruption, poor living standards and inequality. Later, the protests and violence increased, sending a message that these countries were unsafe places to be visited. The instability that spread among the countries in the Mediterranean reshaped the region as vulnerable and threatening, especially in the south shore after several attacks on foreign tourists. Subsequently, a decline occurred in tourist arrivals and revenues, especially in Egypt and Tunisia, affecting the countries’ national income. On the other hand, important destinations in the north shore of the MED region were receiving the bulk of relocations that cancelled their visits to south countries, with some countries such as Spain, Italy, France or Greece remarkably increasing the number of arrivals since the beginning of the Arab Spring.

In this context, the first chapter of the study focuses on reviewing the impact of the Arab Spring movements on the tourism sector for both shores of the Mediterranean, taking Egypt and Spain as reference case studies In the case of Egypt, we can see that the tourism sector has been negatively affected by the instability situation, with this country facing a severe decline in tourist arrivals, revenues, occupancy rates, level of employment, taxes collection and global investments. However, the country is now in the midst of a transition process, and the recovery of a stable situation and the promotion of the country as a safe tourist destination is the main objective for present times, in order to retrieve the necessary benefits coming from international tourism. In contrast, Spain was recording remarkable flows of international inbound tourism in these years. More than 12 million trips have been relocated by international tour-operators into the country since year 2011 according to official estimates (Exceltur), with the year 2015 showing an historical number of 69 million of international arrivals. In broader terms, the South European Mediterranean countries increased international tourist arrivals in more than 50 million people in years 2010-2015, while arrivals in traditional destinations in the North of Africa dropped from more than 7 million people since 2010, with Egypt losing more than 5 million tourists in these years and Tunisia doing it for more than 2.5 million entrances. After this introductory section, the following two chapters of the investigation have focused on how to limit the impact of the instability situation on the tourism and hospitality industry in the MED region. For the south shore region, Chapter 2 proposes a marketing mix model helping to reduce the impact of the crisis on the labour force and feeble management methods. The model is tested for the reference case of Egypt. For the north shore MED region, Chapter 3 reviews the main changes taken place in the profile and vacational behaviour of tourists visiting the region and, by means of an expenditure model, we test how these changes could be affecting the economic sustainability of the tourists sector for the future. This setting is tested for the case of Spain as benchmark destination in this area.

In more detail, the second chapter of the study focuses on designing a new marketing mix model to rescue the hospitality industry in the South region, providing evidence from Egypt after the Arab Spring. The chapter emphasizes the necessity of identifying the key constructs driving the paths of improvement, restructuring and development for the tourism and hospitality industry in times of transition. We divide the model into an internal environment, and an external environment context. Our aim is to provide managers with new analytic tools helping them to overcome the current challenges. In testing the model, empirical research focus on survey analysis made to a sample of 5 and 4 star hotels located in Great Cairo, Alexandria, Sharma El Sheikh, Hurghada, Luxor and Aswan in Egypt. The analysis was carried out by combining different statistical techniques including reliability intrinsic validity tests and logistic regression models. Relying on theoretical models and empirical results, we find out the following: the significant effects of feeble management performance characterizing hotels lie behind most of the labor layoffs. Crises management processes should be considered in this context as an alternative option of layoffs during the transition process.

Moreover, there are significant relationships between the occupancy rate during the transition process and the internal success factors of hotels represented by job oriented and customer oriented constructs. Levels of occupancy rates during the transition process became the key in the internal success factors of hotels, with the proposed marketing model being able to show the linkages between contemporary marketing mix, traditional marketing mix collaborative work achievements, and the rightsizing of cost optimization actions. These results emphasize the role of good management and marketing techniques for dealing with restrictions in times of transition in the hospitality industry at South countries.

Finally, the third chapter of the project investigates the impact of the boost in international arrivals in North MED countries since the beginning of the Arab Spring. It is interesting to note that in Spain, as well as in other north MED countries, the growth of international inbound tourism contrasted with an evident decline in domestic tourist flows since the beginning of the global financial crisis. This boom in international tourism in times of weak domestic demand undoubtedly helped the tourism industry to face its necessary reconversion path.

In the present analysis, this chapter employs survey data of more than 200,000 international tourists who were interviewed by the Spanish Institute of Tourism Studies (IET). The first part of the chapter focused on understanding the main changes taking place in the profile of tourists arriving since the beginning of the Arab Spring movements, and on the characteristics of their vacational stays. Main findings on the issue showed an increase in the presence of new groups of visitors, including tourists from northern Europe, Americas, and Asia in Spain, as well as a growing presence of other interesting segments of tourists, like females, young visitors with tertiary education, or travelling alone and with friends. New types of tourist behaviour have also emerged along these years, including a growing use of rent apartments, booking-in-advance customer preference and generalization of the Internet in tourism planning. Culture is being consolidated as a pivotal asset in the development of the European and Mediterranean tourism, while other interesting activities gaining place at destinations are those of tourism events (sports, cultural) and those closely linked to the idiosyncrasy of the Mediterranean region (gastronomy, nightlife). In the second part of the research we ran tourist expenditure models for four main destinations in Spain (Balearic and Canary Islands, Madrid and Catalonia) in order to identify the factors leading tourism spendings in the country and by destination. The most relevant factors leading expenditure in Spain appear to be those of country of origin, purpose of the visit, type of accommodation chosen, and level of income of visitors.

Combining the results of both sections, we can improve our knowledge on how changes in profiles of tourists would be affecting the economic sustainability of destinations in the near future. In this way, some important results emerge from the investigation. The first one relates to the growing revenues linked to new groups of tourists significantly increasing their presence in Spain through these years. These include international visitors coming from non-traditional origin countries in north of Europe, North America, Asia and the Middle East, all showing much higher levels of expenditure in regards to traditional EU visitors. Other collectives showing higher presence in Spain and increasing average spending according to expenditure equations are those of mid-age visitors, those with mid income levels, first-time visitors, and tertiary educated ones. Young visitors at urban destinations (Madrid and Catalonia), people travelling alone and with friends, all have been increasing their presence in the country in these years and help to increase the level of expenditure in Spain too. Other trends identified in the sample would be also help to increase spending in the future, including people engaged in cultural and food-related activities that has been significantly growing along recent years. Growth of all these activities enlarges the cultural and social dimension of destinations, also increasing economic revenues, reinforcing in this way the destination competitiveness. In general, positive outcomes for economic sustainability and competitiveness appear to be identified in Spain along these years, some of this coming in connection with relocation effects derived from the Arab Spring.

However, notable challenges have been also raised by results of the investigation. One of the most important is that referring to the capacity of destinations to increase spending of traditional EU visitors, given that they continue to represent around half of the global international tourism demand in Spain. Given that North African destinations show higher price competitiveness, pressures for downsizing of tourism prices in Spain have resulted in lower average trip spendings at some destinations. Such an issue points to the need of attracting more high-income tourists from overseas, i.e. Chinese visitors, as they constitute a desired target, but have slightly reduced their presence in Spain during these years. These two key points show the necessity of continuing with the reconversion of the Spanish tourism model, mainly for seaside mature destinations.

Summing up from all chapters, main findings of the Research Project FEM 41-04 showed that the tourism industry in the MED region has been facing a challenging situation, given the instability promoted by recent events, including the Arab Spring and the war in Syria. The project provides instruments to improve feeble management of hospitality industry in South countries, and a number of guidelines directed to increase the average tourist expenditure at north MED destinations for improving their economic sustainability. However, none of this would make no sense without an urgent determination of the EU institutions for achieving peace and stability in the MED region, this being a central policy prescription from the project. The focus of Neighboring Policies on developing cooperation and peace instruments would result in benefits for all the people in the region, as instability is a process that spreads through borders, whether you belong to the North or the South of the MED region.

 

INDEX

“Winners and Losers in the Tourism and Hospitality Industry along the Transition Process: Evidence from South and North MED Countries“

  1. Executive Summary Research Project FEM 41-04
  2. Résumé Exécutif Rapport de Recherche FEM 41-04
  3. Chapter 1: The impact of the Arab Spring and regional instability on the tourism sector along the MED region
  4. Chapter 2: A new marketing mix model to rescue the hospitality industry: Evidence from Egypt after the Arab Spring
  5. Chapter 3: International tourism in Spain since the Arab Spring movements: A review from the perspective of economic competitiveness and sustainability of destinations

FEMISE Seminar: Kafalat facilitates access to credit for Lebanese SMEs

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Khater Abi Habib presented the Kafalat initiative on December 5th 2016 (Beirut) at a seminar organized by Femise on the theme of “Unlocking the Potential of the Private Sector in South Med Countries”.

Khater Abi Habib presented the Kafalat initiative on December 5th 2016 (Beirut), photo FEMISE

Since its creation in 2000 in Beirut, the financial enterprise Kafalat has supported 16,500 projects of Lebanese SMEs. It reassures bankers through the provision of guarantees, allowing SME’s and start-ups to benefit from bank loans in order to develop, create wealth and ultimately jobs. Alongside the European Union, the World Bank and the Lebanese government, Kafalat has also designed new programs to support innovation. It has become a role-model for countries of the Mena region and was presented during the Femise seminar in Beirut.

After 16 years of civil war, the banking system did not provide the Lebanese economy with adequate access to credit. “We founded Kafalat in 1999 after observing a phenomenon of real distortion of the banking sector. At the time, the main beneficiaries of loans had their headquarters within or near Beirut. Only the trading and service sectors could benefit from access to credit. For the sake of inclusiveness, we also wanted to help all the remaining SMEs in the country.

Since its creation, Kafalat has defined priority sectors: industry, agriculture, tourism, crafts and new technologies “, says Khater Abi Habib, Chairman of Kafalat and of the National Institute for the Guarantee of Deposits and shareholder at 75%. About 25% of the capital of Kafalat belongs to 40 Lebanese companies.
Kafalat examines entrepreneurial projects that are transmitted to it by banks. “In 88% of the cases we agree on providing a guarantee after a pre-emptive analysis. Our 30 experts then re-examine the projects and we respond within ten days, “said Khater Abi Habib.

In recent years, Kafalat has adapted its programs through partnerships with the European Union and the World Bank. Kafalat Innovant, is aimed at innovative start-ups of less than two years. “We provide a guarantee of up to 90%. In fact, the bank reduces its exposure to 10%. The ceiling is $ 200,000, but the average loan is generally under $ 75,000. We have helped create an enabling environment for innovation. Many start-ups are joining the country’s incubators, “says Khater Abi Habib.

Support from the European Union and the World Bank

In 2006, the Lebanese government received a loan of $ 30 million from the World Bank. The management of this loan was entrusted to Kafalat, the originator of the ISME program. “10% of this amount is given to researchers, students in the form of endowments. The remaining 90% is allocated to SMEs in the form of ISME fund holdings alongside venture capital and seed companies. We then enter the capital of companies, “says Khater Abi Habib.
After the glorious years of 2010/2011, when 1500 cases and 2 million dollars were guaranteed per year, Lebanon was affected by the war in Syria and Iraq, halving the number of guaranteed projects. However, Kafalat remains confident and the concept could even spread in neighbouring countries. Before the war, Syria had shown interest in the guarantee mechanism. Discussions are now ongoing with the UAE.

The private sector at the heart of Femise focus

Pr. Patricia Augier, Femise Coordinator and President of the Scientific Committees of Femise and Institut de la Méditerranée ©NBC

The ideas presented in Beirut will feed into the 2017 Femise Euromed report, which will focus on the private sector in the countries of the Mediterranean basin.

This report will be edited by the team of Institut de la Méditerranée under the direction of Pr. Patricia Augier, Femise Coordinator and President of the Scientific Committees of Femise and Institut de la Méditerranée.

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Innovative thoughts to unlock the potential of the private sector in MP’s

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FEMISE-AUB Seminar on “Unlocking the Potential of the Private Sector in South Med Countries”, photo FEMISE

FEMISE organized a Policy Seminar on the theme of “Unlocking the Potential of the Private Sector in South Med Countries” on the 5th of December 2016, in Beirut, Lebanon. The seminar was organised in collaboration with our partners, the Institute of Financial Economics, at the American University of Beirut (AUB).

In three sessions and one roundtable discussion, speakers and participants  to the seminar were looking into finding the answers to three main questions:

  • One factual statement that needs validation: the private sector performance in the region is below potential and below the expectations. It is neither dynamic nor productive enough. Furthermore, it is not creating enough jobs.
  • What is preventing the private sector from reaching its potential? Two ideas are being advanced: macro and micro constraints.
  • What is the role of the international community to these regards?

Dr. Youssef El-Khalil (Central Bank of Lebanon), Dr Ahmed Galal (ERF, FEMISE), photo FEMISE

In the first session the speakers highlighted the macroeconomic challenges that are faced by the South Med Countries and which had implications on the development of the private sector. In Lebanon, Dr. Youssef El-Khalil, emphasized the role of the Lebanese Central Bank in stabilizing the economy going through different types of crises in the past 3 decades (i.e. war, political instabilities, refugees from neighbouring Syria). His main message was that the mandate of the Central Bank is not only about stable inflation or stable currency but that it has a social responsibility of promoting inclusive growth, through encouraging entrepreneurial activities and jobs creation among the young and the educated.

In Tunisia, facing the macroeconomic challenges and the lack of resources implied the adoption of two IMF programs (amounting $4.7 million) as explained by Dr. Sami Mouley (University of Tunis El Manar) (presentation available here). The programs aimed at providing stability to the economy and endorsing the financial and credit reforms. However, as the private sector development remained low, accompanying mechanisms directed towards the sector were put in place, these included regulatory reforms, stimulating better quality bank loans, floating the currency, etc.

Pr. Simon Neaime (AUB), Dr. Sami Mouley (Université de Tunis), photo FEMISE

The limited fiscal space and the implementation of fixed exchange rates regimes have negatively affected the efficiency of the Central Banks, according to Dr. Simon Neaime (AUB) (powerpoint presentation available here). Therefore, traditional stabilization monetary and fiscal mechanisms will be difficult to implement as they could lead to further imbalances. Therefore, Dr. Neaime favours alternative mechanisms such as reducing the size of the public sector and the public spending, while giving more room to the private sector. These mechanisms could be coupled with reform strategies that improve the expectations of the private sector. Linking the growth with the private sector development is an extremely important measure that must be considered for the South Med countries.

 

The second session was evolving around the obstacles that the private sector is facing and how to overcome them. An overview of these challenges provided by Prof. Patricia Augier (FEMISE), pointed out to the political instability, access to finance, corruption and inefficient infrastructure.

FEMISE-AUB Seminar on “Unlocking the Potential of the Private Sector in South Med Countries”, photo FEMISE

Following this, speakers from diversity of backgrounds spoke about their own experiences. The project entitled: “Enhancement of the Business Environment in the Southern Mediterranean – EBESM” was introduced by Marie Jo Char which had the objective of promoting the private sector in the region through engaging the entrepreneurs with the policy makers through constructive dialogues (presentation available here). The project, which has many different objectives, is a good example of how NGOs can have an important role to play in enhancing this sector through projects that involve the domestic institutions and using the funding of international donors. The EBESM is funded by the European Commission and the GIZ.

Dr. Khater abi Habib (Kafalat), photo FEMISE

In Lebanon, the SMEs have encountered many challenges for their development as the country was emerging from the war in the 90s. The establishment of Kafalat provided the guarantee necessary to secure loans for SMEs, which had a huge impact on developing this sector. Dr. Khater abi Habib (CEO of Kafalat) highlighted that they targeted specific sectors, which were believed to be most in trouble and whose contributions towards the economy were considered essential (agriculture, industry, tourism, tradition crafts and high tech). Other programs were later introduced by Kafalat that promotes innovate start-ups.

A different, but also successful experience was adopted in Morocco through the National Committee for Business Environment: a committee that was established by the Moroccan government to develop a dialogue between the public and the private sector with the aim to enhance the business environment (presentation available here). Since its creation in 2010, many institutional and regulatory reforms have been implemented through this committee which has benefited the private sector and which has made Morocco jump 60 places in its Doing Business Report ranking.

Complementing the macroeconomic and the microeconomic picture around the private sector development, the third session looked at the issue from an external perspective, that of the international Community.

“Unlocking the Potential of the Private Sector in South Med Countries”, photo FEMISE

Finding more innovative ways to sustain their partnership with the South Med countries is the European Commission new approach to be more responsive to the needs of this region. The revision the EU-Neighbourhood policy was a first step, which was followed by many others at different levels (Macro, Meso and Micro) through regional and bilateral cooperation. The Commission is providing support to the private sector through blending by engaging the Neighbourhood Investment Facility (NIF) in cooperation with financial institutions like the EIB, the EBRD and the EU member states bilateral agencies. Working on providing an enabling environment for the private sector has to go in parallel with policy dialogue, which was what Ms Malin Elander Oggero (The European Commission) explained during her elaborate presentation (powerpoint available here).

At the OECD, the MENA competiveness program has been established to provide support to the MENA region’s development. The approach adopted by the OECD is to compare policy experiences, identify problems, find common solutions to these problems and exchange good practices. These practices are transposed through recommendations and soft law advices and according to the country’s pace and institutional setup. In this way, the OECD is helping to setup an adequate policy framework that encourages the private sector development, while being attentive to its needs. Dr. Nicola Ehlermann (OECD) believes that while it is the government’s role to set the environment and framework for operation, the private sector needs to be involved through constructive dialogue.

Dr Ahmed Galal (ERF, FEMISE), photo FEMISE

The International Financial Cooperation (IFC) of the World Bank Group has adopted a model that serves the SMEs in the region through enhancing investments and providing recommendations. Dr. Marcel Rachid (IFC) explained that the SME finance group identified key important lessons learnt from successful experiences, which could be summarised as follows: developed strategies need to be specific for the country, there is a need to have the necessary infrastructure to ensure transparency, developing SMEs rating agencies and encouraging venture capital (VC) loans for the private sector is important to develop the sector.

At the end of the session, Emmanuel Noutary (ANIMA) pointed-out to some key challenges that he detected through his 10 years experience working with SMEs. Despite the resilience of the economies in the South Med countries, there is lack of efficiency (50% of FDI are in sectors that do not create enough jobs); R&D is at a low level and is dominated by the public sector; South-south integration is far from its potential; there is a lack of efficiency and coordination among institutions and agencies that deal with the private sector; there is lack of coordination between education, industrial and social policies. He also added that organizations such as ANIMA could fill the gap of linking private and policy makers and bring SMEs together to coordinate and benefit from spillover effects.

FEMISE-AUB Seminar on “Unlocking the Potential of the Private Sector in South Med Countries”, photo FEMISE

The final roundtable discussion evolved around the importance of ensuring: that the macroeconomic environment is balanced and encouraging for the private sector, the adoption of inclusive approaches to ensure the contribution of the whole society and that they take part in the distribution process, that we have a holistic approach to ensure that the adopted policies are encouraging the private sector, the importance of providing incentives to move from the informal to the formal markets. Dr. Galal (FEMISE) concluded by saying that we need to have the right balance between what economists propose as technical and social solutions and what politicians adopt as policies.

For a detailed transcript of the Policy Workshop, click here.

 

This event received financial support from the European Union through the FEMISE project on “Support to Economic Research, studies and dialogues of the Euro-Mediterranean Partnership”. Any views expressed in this seminar are the sole responsibility of the speakers.

Good governance a stimulus for trade in Middle East

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Governance in Middle-Eastern and North African countries is a major factor in their businesses’ ability to trade and participate in the global economy. The quality of institutions correlates with the export performance of companies, as shown by the latest FEMISE report (FEM41-08).

The governance in Middle-Eastern and North African countries is a major factor in their businesses’ ability to trade and participate in the global economy. ©DR

The latest FEMISE publication, “Corporate Performance in Transition: The Role of Business Constraints and Institutions in the South Mediterranean Region” (available here), is structured in three parts.
After analyzing the knowhow and constraints of companies located in the Middle East and North Africa, the report goes on to examine the case of Egyptian companies, looking at the obstacles impeding their performance.

The third part of the report, coordinated by economics professor Inmaculada Martínez-Zarzoso, underlines the importance of governance in the companies’ ability to export or import.As part of the ambitious study, the FEMISE economists looked at bilateral exports between 189 trading partners and 19 exporting countries between 1996 and 2013. It transpires that, while democracy and well-functioning institutions are a prerequisite, the business environment not only has an influence on productivity, but also has an effect on the performance of the economy as a whole. Both the trading environment and the institutional framework impact corporate performance and the country’s economic vitality.

The importance of consistent governance in facilitating trade

The study shows that, in the wake of the Arab Spring, new criteria came to the fore. Thus, invoicing and accounting are seen as determining factors in boosting exports.

The business world needs a stable environment, especially where property rights are concerned. Respect for the rule of law, fighting against corruption and an efficient administration boost business relations. Furthermore, two countries with similar governance will see a positive effect on their export levels.

“Similar regulations and the rule of law boost exports in the Middle East. Policies aimed at freeing up trade could therefore be targeted at trading partners with similar norms of governance,” the document states, adding that each of the six governance indicators has a positive impact on bilateral trade.

For more on this timely subject, please download the report available here.

Article produced in partnership with Econostrum.

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Tax reform in Egypt could make its companies more efficient

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The latest FEMISE report (FEM41-08) highlights the obstacles to productivity faced by companies in the Middle East and North Africa. Even before corruption or lack of visibility in the business sector, the taxation burden is the main impediment to corporate productivity. A better understanding of this reality by political circles could encourage companies in becoming more competitive.

 

Les entreprises égyptiennes subissent une pression fiscale qui affecte leur productivité (photo : F.Dubessy)

The tax burden is the main impediment to corporate productivity (photo : F.Dubessy)

Did you know that, in Egypt, companies have to pay 29 different types of taxes and that form-filling alone takes up around 392 hours of work time? Furthermore, the tax levy represents 42.6% of profits. Therefore, it should not come as a surprise that the country is at the bottom of the tax burden table, 148th out of 189! The FEMISE report recommends that “in order to boost corporate productivity, the Egyptian government must overhaul its tax policy”.

The report, entitled “Corporate Performance in Transition: The Role of Business Constraints and Institutions in the South Mediterranean Region” (available here) coordinated by Inmaculada Martínez-Zarzoso, professor of economics at the Universitat Jaume I (Spain), was published in December, 2016.

Twenty-two constraints were identified as being responsible for reducing productivity globally. Undoubtedly, internal factors such as workers’ skills and abilities need to be taken into account when analysing a company’s overall level of competitiveness.

While the tax burden tops the list of impediments, other external factors such as corruption, the lack of visibility in the area of legislation, property prices, access to and the cost of financing, or simply the cost of water and electricity can be real problems for companies.

A new reality after the 2011 revolution

The study looks into the negative effects on corporate efficiency before and after the 2011 revolution. It appears that new obstacles have emerged that have made the business climate less attractive to investors, including regulatory and political uncertainty, corruption and crime. As the report underlines, “The aim of the revolution was to generate economic and social opportunities that would open the way to economic growth and jobs. However, the country has become unstable from a political point of view. This transition period has had a direct impact on efficiency in the private sector.”

Prior to the events of the Arab Spring, interventionist policies were the norm in Egypt, as they were in most Middle-Eastern and North African states. In the report, FEMISE economists also focus on other countries in the region: Lebanon, Jordan, Morocco and Tunisia.

Here again, indicators of regulatory and political uncertainty, corruption and criminality appear to have worsened. The report concludes, “These results have important political implications. Measures aimed specifically at businesses should enable a reduction in the number of obstacles and, consequently, encourage Egyptian manufacturing companies to become more competitive.”

For more on this subject, please download the report available here.

Article produced in partnership with Econostrum.

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Environment – Opportunities to be seized by South-Med countries

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FEMISE is one of the co-authors of the Energies2050 report on climate change in the Mediterranean, presented during COP22. The report points-out insufficient efforts made by Southern Mediterranean countries, all the while highlighting the genuine assets that they can use in their environmental policy.

 

Le rapport Energies2050 a été présenté lors de la Cop22 (photo F.Dubessy)

The Energies2050 report was presented at Cop22 (photo F.Dubessy)

In a chapter of the ENERGIES2050 Report entitled “The South-Med region Post Arab Spring and the potential for the environment”, presented at COP22, Dr. Constantin Tsakas (General Manager of Institut de la Méditerranée and General Secretary of FEMISE), Dr. Maryse Louis (General Manager of FEMISE and Programs Manager at ERF) and Dr. Abeer El-Shinnawy (FEMISE, American University in Cairo) underline the fact that opportunities are there to be seized and externalities to be compensated in the Southern Mediterranean states.

The environmental sector offers immediate opportunities, most particularly through the creation of value added and through new jobs. For example, the authors point out that “270,000 to 500,000 jobs could be created in the renewable energy sector in Morocco by the year 2040.”

However, forecasts are currently worrying, with diminishing water supplies and an increase in risks faced by the agricultural sector. According to the report, “preliminary FEMISE estimates indicate that a 1°C rise in temperatures would result in a drop in GDP per capita of around 8% on average, the figures ranging between -17% for Egypt and 0% for Turkey, Tunisia and certain Mashreq countries.” The rise in sea levels will undoubtedly have the most damaging consequences, with coastal cities in Turkey and Tunisia and in the north of the Nile Delta coming under threat.

The need of giving greater importance to environmental issues

While the chapter does highlight the existence of “a few initiatives”, it also notes that “these efforts remain insufficient to bring large-scale change. It seems vital for Mediterranean countries to give greater importance to environmental issues in their economic policies.”

La centrale solaire Noor de Ouarzazate se trouve en pleine extension (photo F.Dubessy)

The solar power station Noor de Ouarzazate is in full extension (photo F.Dubessy)

Researchers are therefore pressing Southern Mediterranean countries to “give greater importance to environmental issues in their economic policies… to develop businesses/industries that are scarce in the region’s countries”. FEMISE suggests concentrating efforts in the manufacturing, finance, insurance and construction sectors, a move that is even more vital in that, as the report points out, “Southern Mediterranean countries are particularly vulnerable to the impacts of climate change“.

Is there a momentum to be carried forward? Apparently so. Even though the Arab Spring has put environmental concerns on the back burner, the renewable energy sector remains stable in terms of investment in the region, with 2015 being one of the busiest years for FDI-project announcements.

In their conclusions, the authors add that South-Med countries could take advantage of a number of assets: their high potential for solar power production, competitive unskilled labour costs and the fact that, for the European partners, the emergence of a green economy in the region would be a welcome development.

Article produced in partnership with Econostrum.

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