Economic Research Forum (ERF)

Competition laws: a key role for economic growth in MENA

75
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

Fair competition is needed to empower women economically in the Arab world

The participation rates of women in the labour market in Arab countries are the lowest in the world. This column argues that remedying the under-representation of women in the labour force is a social and economic imperative for the region. There are three dimensions for action to realise the potential of Arab women: amending laws and regulations; instilling fair competition in markets; and promoting the digital economy.

Recession without impact: why Lebanese elites delay reform

The survival of Lebanon’s political elites is highly dependent on the wellbeing of the economy. Why then do they delay necessary reform to avoid crisis? This column examines the role of politically connected firms in delaying much-needed economic stabilisation policies.

Competition laws: a key role for economic growth in MENA

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.

The future of Egypt’s population: opportunities and challenges

Egypt’s potential labour supply depends on the growth and changing composition of its working-age population. This column reports the latest data on labour supply and fertility rates, concluding that the country has a window of opportunity with reduced demographic pressures to try to address longstanding structural challenges for the labour market.

Formidable challenges facing the Middle East require a sea change in economic policies

Weakening global growth, endemic conflicts and increased tensions within the Middle East and North Africa (MENA) – as well as emerging challenges such as climate change and rapid demographic shifts – are likely to have an adverse impact on the region’s economic, social and political stability in the coming years. This column outlines the policy responses that are needed to avert disaster.

Domestic demand and competition: a new development paradigm for MENA

A lack of competition in domestic and regional markets is holding back development in the Middle East and North Africa. This column argues that the region and the international community must ensure that barriers to market entry and exit are eliminated, and that independent regulatory bodies at the national and regional levels help to promote domestic demand as the main engine for sustainable and inclusive growth.

Effects of urbanisation on productivity and wages: evidence from Turkey

Are the substantial productivity gains associated with larger cities in developed countries similar for developing countries? This column provides evidence on urbanised economies in the non-Western world by focusing on Turkey, a country that has experienced fast urbanisation and a high rate of growth of the urban population.

How import dependence could lead to corruption in MENA

Export-led development strategies have had little success in MENA countries; what’s more, instruments of earlier import-substitution strategies – such as state-owned enterprises, high tariffs and subsidies – have survived. As this column explains, these legacies have created crony-capitalist industries that have limited the level of competition in many sectors of the economy and furthered the region’s dependence on imports.

Gender discrimination in small business lending: evidence from Turkey

Discrimination in access to financial services can prevent women from exploiting their entrepreneurial potential. This column reports on a ‘lab-in-the-field’ experiment to test for the presence of gender discrimination in small business lending in Turkey.

Social security for young workers in Arab countries

Social security coverage of young workers in Arab countries is low – in part because many are employed in informal jobs; and in part because they do not see the value of the system. This column reports survey evidence on young workers’ attitudes towards participation in both social security and politics. It also explores policy reforms that might make access to social security universal for young workers.