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boost private investment and productivity. They can also provide firms easier access to critical inputs, such as improved electricity supply. They can support productivity through better allocation of resources (for example, more efficient taxation systems) and stronger entrepreneurship activities (for example, lower cost to start a business). In MNA, reforms that move an economy one unit higher in the Global Competitiveness Index have been estimated to have raised productivity potential significantly (Mitra et al. 2016). Many MNA economies have adopted broad-based business climate reforms recently, including improved electricity connection in Bahrain, enhanced electronic tax filing in Jordan, and easier property registration in Kuwait.

Improve governance. Governance quality in MNA, especially in non-GCC economies, lags behind other EMDEs and has improved little over the past decade. Weak governance has discouraged private sector activity and investment (Nabli 2007). Reforms such as streamlining public service delivery and strengthening legal frameworks in areas like procurement laws can increase productivity growth by encouraging more efficient allocation of resources. They can also increase investment prospects through improved investor confidence. Reforms for SOEs in telecom industries can also enhance productivity via higher efficiency (Arezki et al. 2019b).

Improve gender equality. Women account for only about one-fifth of the labor force in MNA. Bridging the gender gap in a number of areas, including workforce development and access to digital and financial services, is especially relevant for MNA. Closing these gaps can raise productivity growth through more vibrant entrepreneurship and private sector participation. Legislation to reduce economic discrimination against women in Tunisia is an example of a recent reform in this area.

In contrast to other regions, labor productivity growth in SAR slowed only mildly after the GFC. During 2013-18, SAR’s productivity growth remained the second fastest among the six EMDE regions, at 5.3 percent a year. Although this has helped reduce the region’s wide productivity gap with the advanced economy average, the level of productivity in SAR remains the lowest among EMDE regions, in part reflecting widespread informal economic activity and struggling manufacturing sectors. Low human capital, poor business environments, inefficient resource allocation, and limited exposure to foreign firms and foreign investment also weigh on productivity. Moreover, SAR economies are likely to face a broad-based decline in labor productivity growth because of the COVID-19 shock. Increasing openness, by enhancing FDI inflows and participation in global and regional value chains, could support technology and information transfer to the region and boost productivity growth. Promoting access to finance and improving infrastructure could lift firm-level productivity in the region.

Evolution of regional productivity

Robust productivity growth. In contrast to other EMDE regions, productivity growth in SAR slowed only mildly after the GFC, to 5.3 percent a year during 2013-18, from

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6.4 percent in 2003-08 (figure 5.24).14 This followed a steady rise from anemic rates in the mid-1980s when heavily state-directed economic policy strategies dampened investment and innovation. In the post-GFC period, a slight moderation in India’s productivity growth was partially offset by pickups in Bangladesh and Pakistan. The region’s resilience reflected three main elements: SAR’s limited exposure to external headwinds, continued rapid urbanization, and an improving business environment that supported productivity gains from the continuing shift away from agriculture toward more productive services sectors (APO 2018; World Bank 2016e). As a result, in the post-GFC period, the share of economies with productivity growth below long-run and pre-GFC averages was lower than in other EMDEs. However, the COVID-19 shock and the related plunge in global forecasts present a substantial risk of slowing productivity growth in the region (World Bank 2020a, 2020e). • In India, disruptions to economic activity due to cash shortages in 2016 and transitional costs related to the introduction of the new Goods and Services Tax (GST) system in 2017 contributed to a slowing of productivity growth to 5.6 percent a year during 2013-18, from the 2003-08 average of 7.1 percent a year.

Nevertheless, India’s post-GFC productivity growth remained in the highest decile among EMDEs. It was supported by investment in the energy and transport sectors, improvement in the ease of doing business, and ongoing structural reforms. • In Pakistan, annual productivity growth picked up from a pre-GFC average of 2.5 percent to 3.5 percent during 2013-18. During the post-GFC period, productivity growth benefited from strong FDI inflows and infrastructure projects that supported private sector activity. • In Bangladesh, post-GFC productivity growth benefited from improved macroeconomic and political stability that supported both public and private fixed investment. As a result, productivity growth in Bangladesh was robust during 201318, at 5.1 percent, slightly above the pre-GFC average of 4.7 percent and in the top decile of EMDEs. • Productivity growth in the rest of the region either stalled or declined in the post-

GFC period in line with the global trend. The factors behind the slowdown included natural disasters, macroeconomic and political instability, and weaker growth of global trade and manufacturing activity. SAR’s robust productivity growth through the 2000s is in stark contrast to its weakness during the 1980s and 1990s, even though in those decades also it was mostly stronger than in other EMDEs. In the 1980s, India’s state-directed economy generated minimal productivity growth as heavy regulation and widespread corruption (the “license raj”)

14 Data for labor productivity at the national level, as well as for the three main production sectors (agriculture, manufacturing and mining, and services), are available for seven EMDEs in SAR: Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan, and Sri Lanka.