Economic Research Forum (ERF)

Competition laws: a key role for economic growth in MENA

1467
Competition policy lacks the attention it deserves in the countries of the Middle East and North Africa (MENA), a region characterised by monopolies and lack of market contestability. As this column explains, there are many questions about the extent of anti-competitive barriers facing new market entrants in the region. What’s more, MENA’s weak overall performance on competition is likely to be hindering economic growth and the path towards structural transformation.

In a nutshell

Reforms of competition policy are what really matter to ensure a long-run sustainable growth path based on markets with a level playing field at the microeconomic level.

Adoption of competition law is insufficient in itself: what really matters is its implementation – hence, the creation of a competition authority indicates the seriousness of a country about effective implementation of competition policy.

Competition has a positive and statistically significant effect on growth of the trend component of GDP, while its effects on the cyclical component are rather insignificant.

There is a big problem of lack of contestability in markets in the MENA region. As Figure 1 demonstrates, in 2010, the region had the highest share of markets dominated by one firm and the lowest share of markets with many firms.

In the 1990s, many MENA countries relied on structural adjustment programmes. Surprisingly, these programmes implied an orientation towards a market economy structure without an explicit adoption of competition laws.

Competition laws only appeared in the later wave of reforms in the 2000s with the objective of regulating the business environment. Almost all MENA countries have adopted a competition law over the last two decades: the exceptions are Bahrain, Iran, Lebanon, Libya and Palestine.

This raises questions about the extent to which these adjustment programmes help with structural and allocation issues in the beneficiaries’ economies or, instead, focus only on macroeconomic imbalances. We believe that the adoption of competition law is insufficient in itself and what really matters is its implementation. Hence, the creation of a competition authority is one of the indicators that confirm the seriousness of a country about effective implementation of competition policy.

For example, we notice some delays in the creation of a competition authority in comparison with competition law enactment, particularly in the cases of Morocco and Yemen among others. In addition, Djibouti and Iraq enacted a competition law but did not establish a competition authority.

We argue that competition law is an allocation policy that is likely to affect the structure of the economy and hence, its effect will get reflected in the trend component of GDP not its cyclical component. In contrast, other policies, such as fiscal, monetary and tax policies, are more likely to affect the cyclical component of GDP since they are stabilisation policies.

Figure 1: Key market structures by region, 2010 (%)

Source: World Bank (2012)

 

Figure 2 confirms our assumption: on average over the period from 2007 to 2017, MENA countries with a competition law achieved higher growth of their GDP structural component as well as a higher actual growth compared with those without a competition law.

 

Figure 2: Cyclical, structural and actual growth in MENA countries (average 2007-2017)

Source: Authors’ calculations based on data from World Development Indicators, World Bank and MENA countries competition authorities’ websites.

Research assessing the impact of competition policy is scarce in general and, in particular, for the MENA region. We therefore aimed to provide empirical evidence on the impact of competition laws in the MENA region on economic growth in order to stimulate debate on the usefulness of this policy and to provide it with greater legitimacy.

In one study (Youssef and Zaki, 2019a), we first construct our own indices to assess the effectiveness of MENA countries’ competition laws in three categories: enforcement; advocacy; and institutional effectiveness. We extend our assessment of competition rules to all MENA countries in a second study (Youssef and Zaki, 2019b).

Our findings suggest the following: first, the overall assessment of MENA countries’ competition legislation is broadly average. The Maltese and the Algerian legislation are the best performers among the group while the Iraqi and the Yemeni legislation are the weakest. This suggests that there are several potential areas for reform.

Second, most MENA countries revised their laws with some improvements in different aspects. Yet this was not necessarily reflected as an improvement in their overall index. Only the indices for Egypt and Tunisia witnessed the most noticeable improvement in their value following their latest amendment in comparison with earlier drafts.

Third, in terms of the performance of MENA countries’ legislation in the three categories, advocacy seems to be an area of weakness. Moreover, most of these countries’ legislations score better in enforcement against anti-competitive acts compared with institutional effectiveness.

We disentangle the effects of competition laws on growth by distinguishing between the growth of structural and cyclical components of GDP. Our findings show that competition measures exert a positive and statistically significant effect on the growth of the trend component of GDP, while its effects on the cyclical component are rather insignificant.

This result is robust for the two measures of competition we use – the existence of competition law and our own index of overall competition rules – as well as for the three main sub-components of our index: enforcement; advocacy; and institutional effectiveness.

Policy implications

We believe that this discussion of competition policy within the current context of the second wave of reforms in the MENA region is important and timely. After the Arab Spring, several countries in the region once more resorted to international organisations’ reform programmes since their economies were deeply affected by the uprisings.

In particular, the uprisings were a kind of alarm indicating that the region needs to rethink its economic model. For example, even if the MENA countries were to revert back to the pre-uprisings growth levels, this would still be insufficient since it is the quality of growth that matters. But within the context of post-uprisings reform programmes, it seems that structural reforms are still delayed since they are more challenging to implement than stabilisation reforms.

To that effect, structural reforms, including competition policy enforcement, might be sometimes perceived as luxurious reforms compared with pressing social demands and the challenge of macroeconomic imbalances. We argue that these reforms are what really matter to ensure a long-run sustainable growth path based on markets with a level playing field at the microeconomic level.

Further reading

Buccirossi, P, L Ciari, T Duso, G Spagnolo and C Vitale (2013) ‘Competition Policy and Productivity Growth: An Empirical Assessment; Review of Economics and Statistics 95(4): 1324-36.

Carlin, W, S Fries, M Schaffer and P Seabright (2001) ‘Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey’, European Bank for Reconstruction and Development Working Paper No. 63.

Sekkat, K (2009) ‘Does Competition Improve Productivity in Developing Countries?’, Journal of Economic Policy Reform 12(2).

Youssef, J, and C Zaki (2019a) ‘A Decade of Competition Policy in Arab Countries: A De Jure and De Facto Assessment’, ERF Working Paper No. 1301.

Youssef, J, and C Zaki (2019b) ‘Between Stabilization and Allocation in the MENA Region: Are Competition Laws Helping?’, ERF Working Paper No. 1319.

 

 

Most read

EU climate policy: potential effects on the exports of Arab countries

The carbon border adjustment mechanism aims to ensure that Europe’s green objectives are not undermined by the relocation of production to parts of the world with less ambitious climate policies – but it could impose substantial costs on developing countries that export to the European Union. This column examines the potential impact on exporters in the Arab world – and outlines possible policy responses that could mitigate the economic damage.

Financial development, corruption and informality in MENA

Reducing the extent of informality in the Middle East and North Africa would help to promote economic growth. This column reports evidence on how corruption and financial development influence the size of the informal economy in countries across the region. The efficiency of the financial sector in MENA economies reduces the corruption incentive for firms to seek to join and stay in the formal sector.

Green hydrogen production and exports: could MENA countries lead the way?

The Arab region stands at the threshold of a transformative opportunity to become a global leader in green hydrogen production and exports. But as this column explains, achieving this potential will require substantial investments, robust policy frameworks and a commitment to technological innovation.

Climate change threats and how the Arab countries should respond

The Arab region is highly vulnerable to extreme events caused by climate change. This column outlines the threats and explores what can be done to ward off disaster, not least moving away from the extraction of fossil fuels and taking advantage of the opportunities in renewable energy generation. This would both mitigate the potential for further environmental damage and act as a catalyst for more and better jobs, higher incomes and improved social outcomes.

Freedom: the missing piece in analysis of multidimensional wellbeing

Political philosophy has long emphasised the importance of freedom in shaping a meaningful life, yet it is consistently overlooked in assessments of human wellbeing across multiple dimensions. This column focuses on the freedom to express opinions, noting that it is shaped by both formal laws and informal social dynamics, fluctuating with the changing cultural context, particularly in the age of social media. Data on public opinion in Arab countries over the past decade are revealing about how this key freedom is perceived.

Child stunting in Tunisia: an alarming rise

Child stunting in Tunisia seemed to have fallen significantly over the past two decades. But as this column reports, new analysis indicates that the positive trend has now gone dramatically into reverse. Indeed, the evidence is unequivocal: the nutritional health of the country’s youngest citizens is rapidly deteriorating and requires immediate and decisive action.

Exchange rate undervaluation: the impact on participation in world trade

Can currency undervaluation influence participation in world trade through global value chains (GVC)? This column reports new evidence on the positive impact of an undervalued real exchange rate on the involvement of a country’s firms in GVCs. Undervaluation acts as an economy-wide industrial policy, supporting the competitiveness of national exports in foreign markets vis-à-vis those of other countries.

New horizons for economic transformation in the GCC countries

The countries of the Gulf Cooperation Council (GCC) have historically relied on hydrocarbons for economic growth. As this column explains ahead of a high-level ERF policy seminar in Dubai, emerging technologies like artificial intelligence, blockchain and robotics – what some call the fourth industrial revolution – present a unique opportunity for the region to reduce its dependence on oil and make the transition to a knowledge-based economy.

Shifting public trust in governments across the Arab world

The Arab Spring, which began over a decade ago, was driven by popular distrust in governments of the region. The column reports on how public trust has shifted since then, drawing on survey data collected soon after the uprising and ten years later. The findings reveal a dynamic and often fragile landscape of trust in Arab governments from the early 2010s to the early 2020s. Growing distrust across many countries should raise concerns about future political and social instability.

Corruption in Iran: the role of oil rents

How do fluctuations in oil rents influence levels of corruption in Iran? This column reports the findings of new research, which examines the impact of increases in the country’s oil revenues on corruption, including the mechanisms through which the effects occur – higher inflation, greater public spending on the military and the weakness of democratic institutions.




LinkedIn