1. What’s holding back the private sector in MENA?
Lessons from the Enterprise Survey
The MENA region is in search of a more inclusive pattern of growth:
Post Arab upspring in search for inclusiveness
Local market development as a response to economic migration
The formal private sector in the region is small, but can be a seed for a more effective and inclusive growth path

2. EBRD-EIB-WBG MENA Enterprise Survey and Report
MENA ES:
Around 6,000 firms in the formal private sector
Topics covered:
Firm productivity & business environment
Access to finance
Jobs and skills
Competitiveness
A unique project, result of a close cooperation among the EBRD, EIB and the WBG
Data collected in with financial information referenced to 2012
According to Schneider, Buehn and Montenegro (2010), in 2007, informal economy accounted for 31.0% of GDP in lower-middle-income MENA ES (Egypt, Morocco and Yemen), compared with 37.9% of GDP in lower-middle-income economies excluding MENA ES. In upper-middle-income MENA ES (Jordan, Lebanon and Tunisia), informal economy accounted for 28.2% of GDP in 2007, compared with 33.4% of GDP in upper-middle-income economies excluding MENA ES. All the estimates are calculated using the same approach: a Multiple Indicators Multiple Causes (MIMIC) model. Figures for 2012 for Egypt indicate that informal economy shrank to 29.9% of GDP. Comparable figures are not available for other countries.

3. Firm productivity and the business environment
The formal private sector as a seed for more inclusive growth
Can the formal private sector be a seed for more inclusive growth?

4. Political instability, electricity, corruption, access to finance are the main perceived obstacles to operations
GDP per capita growth was more steady in economies with politically stability
Political instability seems to have negatively affected firms’ sales, employment, and labor productivity growth; though governments cannot do much with respect to political instability in the short term
High perceived corruption is associated with lower sales and employment growth, and lower labor productivity
There is also evidence that corruption may deter interactions with public authorities, preventing firms from making full use of the opportunities available to them
There is a significant negative relationship between poor supply of electricity and labor productivity
Informality is among the top three obstacles in Tunisia, Morocco and West Bank and Gaza. It is in general an issue in MENA ES, but does not necessarily show up among the top three obstacles, as the firms are even more concerned about other aspects of business environment.

5. Small firms suffer more from political instability and issues related to electricity and access to finance
In addition, SMEs are:
More likely to experience a power outage and less likely to use a generator
More likely to be credit constrained

6. Access to finance
Banks and firms happily apart

7. Banking sectors are large, but lending is concentrated and firms tend to disconnect from the financial sector
73% of firms are not credit constrained: they had loans approved in full or did not apply for a loan as they have enough capital
58% of firms are disconnected: did not apply for a loan because of sufficient funds
Loan concentration (share of top 20 exposures in bank equity), is the highest in the world

8. Disconnected firms lose growth opportunities
Disconnected firms resemble credit constrained firms
Low propensity to invest
Low likelihood of having expansion plans – even when capacity utilization is high
However, they are not complaining about this situation, while credit constrained firms are

9. What explains firms’ disconnect
Collateral requirements are stringent in MENA, in terms of incidence of collateral requirement and assets accepted as collateral
Firms are more likely to disconnect when collateral demands are stringent, particularly when they are young
Firms – both young and old - are less likely to disconnect from the banking system when banks accept movable assets as collateral
Firms grow faster when collateral requirements are less demanding
Unregistered firms less likely to become connected (informality)
Firms are less likely to connect when banks are not competitive (competitiveness)
Collateral policies: results from research project that uses data on the location of firms and bank branches to examine how collateral policies affect credit demand and employment growth
Two measures of collateral: average ratio collateral to loan value and average incidence of movable assets.
“high collateral ratio” scenario: collateral index in at most the 25th percentile of the country-specific distribution [higher value of the collateral index indicates looser collateral policies]
“low collateral ratio” scenario: collateral index in at least the 75th percentile of the country-specific distribution
Results for movable collateral similar, main difference: both young and old firms differ from movable collateral

10. Policy implications
Dealing with political instability, corruption, electricity and access to finance is key to support the growth of the formal private sector, especially for smaller firms
Distortions matter: carefully assess distortions, such as privileges, subsidies, transfers and, more generally, competition policies
Build a bridge between firms and banks:
Reduce the net costs of formalisation and increase firms transparency
Better risk assessment capabilities for banks
More competition
Credit guarantee schemes can facilitate lending to borrowers that otherwise would be too risky
Reform of the secured transactions framework can alleviate collateral constraints (movable collateral)

11. Thank you