Middle East and North Africa

G L O B A L P R O D U C T I V I T Y C H A P T E R 5 303

Labor productivity growth in MNA was the weakest among EMDE regions before and after the GFC. It averaged –0.1 percent between 2013-18, although with wide heterogeneity across economies within the region. Weak productivity growth has widened the region’s productivity gap with advanced economies. Large public sectors, underdeveloped private sectors, and lack of economic diversification hold back productivity growth. Although recent reform initiatives in many countries in the region are promising, the COVID-19 pandemic may hinder productivity in the short and medium term. A multipronged policy effort is needed to reliably raise productivity growth in the region, including raising the quality of human capital and boosting private sector investment, increasing firm productivity, removing obstacles to sectoral reallocation, and creating business-friendly environments.

Evolution of regional productivity

Low labor productivity growth. From an already weak pre-GFC rate (0.1 percent during 2003-08), labor productivity growth in MNA decelerated further, to about –0.1 percent during 2013-18, the weakest among EMDE regions (figure 5.20).11 This slowdown affected more than half of EMDEs in the region and was strongest among energy exporters, where productivity growth has been severely constrained by weak investment (figure 5.21). Moreover, continued reliance on commodity exports in many economies means that they have not experienced the diversification or expansion of other sectors that helped drive high productivity growth in regions such as EAP. Weak post-GFC productivity growth in the region continues a long-standing trend that featured productivity growth below the EMDE average for the past two decades. The disruptions spurred by the COVID-19 pandemic put the productivity prospects of the region at substantial risk, especially combined with the negative oil price shock.

Within-region heterogeneity. Within-region productivity trends differ considerably. Energy-exporting economies experienced a 0.5 percent productivity contraction in 201318, amid a 50 percent plunge in oil prices from a mid-2014 peak. In energy importers, productivity growth rose to 1.9 percent in 2013-18, from 1.3 percent in 2003-08.

Wide dispersion in labor productivity levels. At two-fifths of advanced economy productivity, MNA has the highest productivity level of any EMDE region. Yet, relative to the advanced economy average, the level was lower in 2013-18 than in 2003-08. Moreover, productivity levels in MNA differ widely within the region, with substantially higher levels in the Gulf Cooperation Council (GCC) economies than in energy importers. This disparity reflects the variation in natural resource endowments between lower-middle-income energy importers such as Egypt, Morocco, and Tunisia, and highincome energy exporters such as Saudi Arabia and the United Arab Emirates.

11 The primary sample under which regional labor productivity trends are discussed is based on 14 MNA economies: Algeria, Bahrain, the Arab Republic of Egypt, the Islamic Republic of Iran, Iraq, Jordan, Kuwait, Lebanon, Morocco, Oman, Qatar, Saudi Arabia, Tunisia, and the United Arab Emirates.