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‘Political connections weaken job creation by private sector in Mideast, North Africa’

By Dana Al Emam - Dec 06,2014 - Last updated at Dec 06,2014

AMMAN — The private sector in the Middle East and North Africa (MENA) region does not generate enough jobs, a World Bank economist told a discussion group at the University of Jordan on Thursday.

"For each 1,000 persons in the region, less than one new firm is created," said Marc Schiffbauer, co-author of the World Bank's "Jobs or Privileges" report, which studied the demand on jobs in MENA.

He indicated that the sector's "weak" job creation is affected by the political connections of some businesses, which hinders others with no connections from competing.

Schiffbauer explained that policies that provide privileges to firms based on their political connections discourage competition and contribute to a decrease in job creation and private sector growth in the region. 

"The lack of competition leads to a lack in firm creation, which leads to a lack in productivity," added Schiffbauer, who is an economist at the World Bank's Poverty Reduction and Economic Management unit.

The report states that the entry of new businesses into politically connected sectors is about 28 per cent lower than into non-connected firms.

Also, businesses in politically connected industries are up to 14 per cent more likely to have acquired land from the government, and are less likely to undergo inspections of municipalities.

"An additional firm with a politically connected chief executive officer reduces the average waiting time for a construction permit in an industry for 51 days", the recently published report pointed out. 

In Jordan, around 50 per cent of firms face major obstacles in regulatory policies, while around 30 per cent face moderate obstacles and 20 per cent face minor obstacles, according to 2011 data compiled in the report.

Meanwhile, startups as well as micro and small businesses are the main job generators.

"Between 42-72 per cent of all jobs in the region are in firms with less than 10 employees," Schiffbauer indicated, noting that Jordan and the region do not have enough startups.

Employment in micro-firms with less than five employees dominates the private sector in the West Bank, Gaza and Egypt, reaching up to 60 per cent, while it drops to around 40 per cent in Jordan and Tunisia, the report showed.

At 36 and 33 per cent, Tunisia and Jordan respectively have the highest concentration of workers in large enterprises, while Turkey has the highest share of workers in medium-sized enterprises.

In Lebanon, micro-startups generated some 66,000 jobs between 2005 and 2010 forming 177 per cent of net job creation for that period, while around 580,000 jobs were created in Tunisia between 1996 and 2010, forming 92 per cent of all net job creation.

However, micro and small enterprises rarely grow.

"Micro-firms with fewer than 10 employees almost never enter large size categories," the report states, noting that medium-sized establishments are less likely to become large enterprises in the MENA region.

In 2006, only 2.2 per cent of small enterprises, with less than 10 employees, operating in Jordan have achieved growth and hired more than 10 workers after five years. 

Around 30 per cent of jobs created in Jordan between 2006 and 2011 were in the fields of real estate, finance, chemicals, pharmaceuticals and food production. 

Commenting on the report, Planning Minister Ibrahim Saif said the report included detailed analysis of the region's policies that obstruct competitiveness. 

"The report is timely as the current focus is on creating job opportunities in the region", he added, noting that the report discusses factors that contribute to delays in the job creation process.

He continued that the report recommends reforming policies to encourage competitiveness and allow equal opportunities to those willing to start enterprises.

Schiffbauer explained that policies that provide privileges to firms based on their political connections discourage competition and contribute to a decrease in job creation and private sector growth in the region, experts said. 

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