The microeconomics of growth in the MENA Region (1970-2000)

How do the key micro-agents of growth contribute to the growth process? This paper selects the main factors conditioning the behavior of the firms and establishments, and how it bears on the growth process in the MENA region.

The paper examines the constraints facing SMEs in the MENA countries, and evaluates the extent to which these affected their growth potential.

The paper finds that:

• MENA region countries are subject to a high degree of external volatility. This affects the “exchange rate expectations”, and in turn this increases the degree of “aggregate uncertainty”, thus resulting in depressed investment at the micro-level
• a large majority of these firms hardly survive their owners, or a key personnel, thus resulting in a reduction in the “growth momentum” at both micro and macro levels
• the lack of appropriate investment outlets places high premium on liquidity and idle cash balances, thus reducing the effective mobilization of domestic savings for growth purposes
• late payment and late deliveries are passed from one firm to another, leading to slow growth in the aggregate
• firms and businesses in MENA region countries face high “transactions cost”, due to: the deficient service delivery, supply problems, high proportion of defaulters, high labor turnover and absenteeism, high cost of gathering information
• “poor households” dissave as often as they save, hence they do not accumulate assets over the long term, and have on average very small asset holdings
• most savings in MENA region countries are of precautionary nature, and may be held in nonproductive assets, such as jewelry and precious metals, reducing the growth momentum in the economy
• poor households with very low marginal returns to labour may have an array of high-pay off investments that they are unable to undertake because of the lack of the appropriate level of funding, technical expertise, and proper marketing arrangements