At the World Economic Forum’s Annual Meeting in Davos two years ago, we discussed the need for MENA countries to unite as a trading bloc and how that represents an opportunity to add around $2.5 trillion in combined GDP to the wealth of the region.
This meeting took place just over a month before the COVID-19 pandemic laid siege to our global community. Today, as the pandemic continues to challenge and disrupt economies around the world, the need to collaborate across borders is stronger than ever. Achieving this requires a world-class internal market within MENA, one that can bolster efficiency and boost economic growth.
What’s more, the region’s countries must focus on building a bold, inclusive and environmentally sustainable recovery, one that empowers as many people as possible and harnesses our natural resources for good.
To make this work, we must ensure all stakeholders are pulling in the same direction. This will require coordination on three major fronts:
1. Create policies that unlock growth
Trade among MENA countries is low compared to other regions. When we explored this with McKinsey prior to the pandemic, the inter-regional share of trade in goods within MENA and Pakistan amounted to less than a fifth compared to Asia-Pacific and the EU.
At our last physical meeting in Davos, we identified selective deregulation, free movement of resources and data, and common standards as the key policy levers that could unlock growth.
Since then, COVID-19 has shuttered businesses and economies around the world and raised the bar for achieving this even higher. In response, governments in the MENA region deployed strategies to support households and businesses and accelerated policy reforms to attract investment and help bolster growth.
The Kingdom of Saudi Arabia and the United Arab Emirates (UAE) loosened visa restrictions as part of a plan to retain talent and shore up the recovery. In the UAE, so-called green visas are aimed at investors, skilled workers and graduates, while restrictions on the recruitment of temporary workers have also been relaxed as part of a broader deregulation of the labour market.
Throughout 2020 and 2021, policymakers and regulators in the UAE, the Dubai International Financial Centre and the Abu Dhabi Global Market sped up efforts to protect businesses from the impact of the pandemic. In November 2021, the UAE enacted its largest ever legal reform, with sweeping changes to more than 40 laws, including those governing entrepreneurship, employment, copyright and commercial companies.
Elsewhere in the region, Egypt is part way through implementing its ambitious Egypt 2030 strategy, which is improving the quality of life for all citizens by investing in human capital, undertaking reforms and embarking on major development projects.
This progress is extremely encouraging. However, across the region advances have been somewhat uneven, lending even greater support for a sustained cross-sector focus. Further formalising, elevating and evolving the structures that enable public and private dialogue would afford both sides of the coin clear benefit. From accessing experience and insights to alignment in purpose and goals, the leveraging opportunity to drive consistent, collaborative effort toward sustainable growth would lend further momentum to achieving the region’s growth potential.
3. Improve access to finance
Central to achieving these goals is how easily we can free up capital to finance them. Our ability to attract international investors has lagged behind other regions – a theme highlighted in a report showing how our rate of foreign direct investment falls short.
We have seen some improvements on this front, despite the impact of the pandemic, which saw global FDI flows falling by 35% in 2020, according to UN estimates. Restoring them is vital, since multinational enterprises help generate employment, growth and foster technological innovation wherever they invest.
For MENA, the UN has highlighted how an improved investment environment in countries like Saudi Arabia and the UAE will probably mitigate the drop. The report cites new regulations and easing restrictions in those countries and underscores how this should underpin investment flows over the medium and long-term.
Another change in the past few years is the volume of sustainable finance that’s becoming available. Countries across the region should be able to access financial instruments meeting green and environmental, social and governance requirements such as Islamic finance, as well as sustainability-linked loans, bonds and green bonds.
There’s also scope for the region to become an exporter of SDG-aligned investment products, as green Islamic finance instruments become more readily available.
Finance will be critical both to mitigating climate risk and to realising the potential that the green economy holds for MENA. We have abundant renewable resources - such as solar energy - that we can export directly, turn into carbon-neutral products and use to diversify our energy mix. But again, success will depend on us converging and acting together - not least as we prepare for two forthcoming COP events in Egypt and the UAE in the next two years.
3. Encourage cross-border collaboration
The success of what I’ve outlined so far hinges on how well we can coordinate across our borders. At the turn of the century, the Gulf Cooperation Council (GCC) set the roadmap for closer integration, and synergies between member states have already led to efficiencies and more dynamic markets. The progress made here can act as a template for widening the bloc and enhancing collaboration between all countries.
At a recent summit, the leaders of the GCC endorsed directives on economic and developmental integration and stressed the need to enhance governance, transparency, accountability, integrity and to fight corruption – values that underpin the whole MENA region.
Only a concerted and sustained effort will move us closer to an economic regional bloc – on a par with the EU and the Regional Comprehensive Economic Partnership – that has a meaningful role to play on the global stage.
At this time, as the pandemic proves to be a test for us all, we must focus on what unites our diverse region and rise above any regional tensions that may arise. There is much to be positive about: our countries enjoy access to large global markets, a young and well-educated population, and a plethora of natural resources that can underpin the shift to sustainable energy.
We must bring these commonalities to bear and extend them to create an effective trading bloc, and a region where all countries can reach their potential for growth and prosperity.
Around the world, all stakeholders are demanding more from business leaders, politicians and policy makers. Embracing this can help supercharge our growth in the wake of the pandemic, lift all our citizens and stakeholders, and ensure a healthy, successful future – the time to do so is now.