What’s holding back the private sector in MENA? - Lessons ...€¦ · MENA ES firms are more...
Transcript of What’s holding back the private sector in MENA? - Lessons ...€¦ · MENA ES firms are more...
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What’s holding back the private sector in MENA?
Lessons from the Enterprise Survey
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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
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Firm productivity and the business environment
The formal private sector as a seed for more inclusive growth
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Firms in MENA have relatively high labor productivity, but not higher TFP…
Labor productivity and total factor productivity (TFP)
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10
20
30
40
50
60
70
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Egypt,Arab Rep.
Tunisia Lebanon WestBank and
Gaza
Morocco Jordan Yemen,Rep.
Perc
ent o
f firm
s with
pro
duct
ivity
abo
ve th
e m
edia
n of
resp
ectiv
e in
com
e pe
ers
Labor productivity TFP
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…mostly due to inefficiently high capital shares, particularly in medium and large firms
Median capital share, by size of the firm
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10
20
30
40
Smal
l
Med
ium
Larg
e
Smal
l
Med
ium
Larg
e
Smal
l
Med
ium
Larg
e
Smal
l
Med
ium
Larg
e
Lower-middle-income
MENA ES
Lower-middle-income
Upper-middle-income
MENA ES
Upper-middle-income
Perc
ent
Political instability, electricity, corruption, access to finance are the main perceived obstacles to operations
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10
20
30
40
50
60
70
Polit
ical
inst
abili
tyAc
cess
to fi
nanc
eEl
ectr
icity
Polit
ical
inst
abili
tyIn
form
ality
Acce
ss to
fina
nce
Polit
ical
inst
abili
tyEl
ectr
icity
Corr
uptio
n
Polit
ical
inst
abili
tyEl
ectr
icity
Corr
uptio
n
Polit
ical
inst
abili
tyEl
ectr
icity
Info
rmal
ity
Acce
ss to
fina
nce
Tax
rate
sPo
litic
al in
stab
ility
Elec
tric
ityCo
rrup
tion
Tax
rate
s
Corr
uptio
nIn
adeq
uate
ly e
duca
ted…
Info
rmal
ity
Egypt, ArabRep.
Tunisia Yemen, Rep. Lebanon West Bankand Gaza
Jordan Djibouti Morocco
Perc
ent o
f firm
s ind
icat
ing
top
obst
acle
In addition, SMEs are: • More likely to experience a power outage and less likely to
use a generator • More likely to be credit constrained
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Small firms suffer more from political instability and issues related to electricity and access to finance
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10
20
30
40
50
60
70
Electricity Finance Political Instability
Perc
ent o
f firm
indi
catin
g a
maj
or o
r ve
ry se
vere
obs
tacl
e
SMEs Large firms
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Firm dynamics is weak, but productive firms grow faster and pay higher salaries
• During 2009-2012 labor productivity declined, as sales growth lagged behind employment growth
• Medium-sized firms faced particular difficulties, reflecting poor firm dynamics
• Evidence from market forces at work: – Productive firms grow faster – More productive firms pay
higher salaries
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1.0
Small (5-19) in2009
Medium (20-99) in 2009
Large (100+) in2009
Firm
size
in 2
012,
%
Firm size in 2009
Small (5-19) in 2012 Medium (20-99) in 2012
Large (100+) in 2012
Firm size transition between 2009 and 2012
1. The formal private sector can be a seed for more inclusive growth in MENA
2. Dealing with political instability, corruption, electricity and access to finance is key to support the growth of the formal private sector
– This is particularly relevant for smaller firms, as they report that they are more constrained by the existing operating environment
3. Distortions matter
– Need to carefully assess distortions, such as privileges, subsidies, transfers and, more generally, competition policies
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Policy implications
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Access to finance
Banks and firms happily apart
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• 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
Banking sectors are large, but lending is concentrated and firms tend to disconnect from the financial sector
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Deposits Credits togovernment
Credits toprivate sector
MENA ESLower middle incomeUpper middle income
Perc
enta
ge o
f GDP
Loan concentration (share of top 20 exposures in
bank equity), is the highest in the world
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
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01020304050607080
Djibouti West Bankand Gaza
Egypt, ArabRep.
Morocco Jordan Yemen, Rep. Lebanon Tunisia
Perc
ent o
f firm
s
Disconnected Discouraged Connected
• Collateral requirements are particularly 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 grow faster when collateral requirements are less demanding
Banks’ collateral policies can induce firms to disconnect and prevent growth
Policy implications
1. It is necessary to construct the bridge: – Reduce the net costs of formalization and increase firms transparency – Better risk assessment capabilities for banks
2. Credit guarantee schemes can facilitate lending to borrowers that otherwise would be too risky
3. Reform of the secured transactions framework can alleviate collateral constraints
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Jobs and skills in the formal private sector A call for higher and more inclusive growth
• Females account for 18% of the jobs in firms, vs 34% in other regions, own only 3% and are top managers in only 5% of firms – Firm performance (labor productivity, sales growth or employment
growth) and the business environment are not related to the gender of top managers, owners or employees -> this could reflect a very strong survivorship bias
– Firms managed by women have a higher proportion of female employees
• Younger or larger firms employ more young workers – Firms with a higher share of young workers report more skills
mismatches and provide more training
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Jobs for female and young
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Skills shortages are particularly in fast growing firms; possible educational mismatches
• Inadequately educated workforce mostly an issue in Yemen, Morocco and Tunisia (above income peers)
• Skill shortages are a greater concern for firms that grow rapidly
• Firms that complain of skills shortages rely more on university educated employees
• Only 17% of firms train their workers: very low by international standards (around 38% in their peers)
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Empl
oym
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row
th (%
)
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15
30
45
No Minor Moderate Major Verysevere
Perc
ent o
f uni
vers
ity
educ
ated
em
ploy
ees
Inadequately educated workforce as an obstacle to the enterprise
1. Remove distortions preventing entry into the labor market
– Impediments preventing women participation
– More focused and targeted education for the young
2. Reduce the mismatch between the skills learned in formal education and those required by the business community
3. Provide incentives to increase the training intensity in firms
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Policy implications
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Competitiveness in MENA Trade, innovation and management practices as drivers for productivity growth
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MENA ES firms are more likely to export, but those exporting firms are small and show low productivity premia
• MENA ES exporters are numerous (25% of firms are exporters in MENA ES vs 14% in lower- and 18% in upper-middle-income economies)
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100200300400500600700800900
1000
MENA ES Lower-middle-income
Upper-middle-income
Perc
ent
Superstar Big player Small player
Labor productivity premium, exporting groups vs non-exporters
Most exporters in MENA ES are SMEs
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MENA ES Lower-middle-income
Upper-middle-income
Perc
ent o
f exp
orte
rs th
at a
re
SME
s
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Manufacturers in the MENA ES are particularly import reliant, and importers have higher productivity premia than exporters
Import reliance of manufacturers
Source: Enterprise Surveys.
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20
40
60
80
100
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140
160
MENA ES Lower-middle-income
Upper- middle-income
Perc
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Two-way trader Export only Import only
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30
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70
MENA ES Lower-middle-income
Upper-middle-income
Perc
ent
Manufacturers importing inputs
Inputs of foreign origin
Labor productivity premium of traders vs. non-traders
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Firms innovate, mostly adopting existing technologies, but labor productivity gains
from innovation are small
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5
10
15
20
25
MENA ESManufacturing sector
20+ employees
Perc
enta
ge in
crea
se in
labo
r pr
oduc
tivity
Product Process
Technological Non-technological
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5
10
15
20
25
MENA ES, manufacturing andservices
Perc
ent o
f firm
s
Product Process
Technological Non-technological
38 percent of firms in MENA ES introduced at least one type of innovation
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Firm-specific human capital, access to knowledge and access to finance have a positive impact on innovation
Firm-specific human capital
• Providing formal training to employees
• Giving employees time to develop new ideas
Access to knowledge
• Foreign ownership
• Importing and exporting
• Licensing of foreign technology
• ICT use
Access to finance
• Line of credit or loan
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Poorly managed firms would benefit more from improving their management practices than from innovating
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5
10
15
20
25
Engage in innovation Improve management quality from25th to 75th percentile
Perc
ent i
ncre
ase
in la
bor p
rodu
ctiv
ity
Product Process Technological Non-technological
• … while well managed firms benefit more from innovation than from further improvement of management practices
1. Remove restrictions to firm entry and exit as well as restrictions that give incumbent firms undue advantage
2. Greater openness to international trade; more effective customs and trade regulations for importers and exporters
3. Importing should not be viewed solely through the (negative) lens of trade deficit and foreign exchange reserves; it can be a means to encourage more high-value added production
4. More open approach to FDI, as foreign ownership is also a means for acquiring knowledge and introduce innovation in the market
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Policy implications