Economic Research Forum (ERF)

Competition laws: a key role for economic growth in MENA

2517
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.

 

 

Tags: , , , ,

  • Jala Youssef
    Jala Youssef
    PhD Candidate in Economics at the University of Paris 1 Panthéon-Sorbonne in Double Degree with Cairo University
  • Chahir Zaki
    Chahir Zaki
    Chaired Professor of Economics, University of Orléans

Most read

Beyond job creation: how can Egypt’s gender gap in work be closed?

More than 2 million jobs are needed each year to absorb new entrants into Egypt’s labour market and raise the country’s employment rate. The job challenge is even more acute for women, whose labour force participation remains low despite recent gains in education. This column reports on the second Development Dialogue, an ERF–World Bank Group joint initiative, which brought together students, scholars, policy-makers and private sector leaders at the American University in Cairo to consider how the country’s gender gap in work can be closed.

Digitalisation, global value chains and regional integration in MENA & SSA

Participation in global value chains is vital for countries pursuing structural transformation and inclusive economic development. This column summarises new evidence on how much production processes have been globalised in Africa and the Middle East relative to other regions; whether this process has taken place with partners within or outside the region; and whether it has taken place more in manufacturing or services.

How trade policy can reduce MENA’s cereal import vulnerability

Heavy dependence on imported cereals, combined with climate change, water scarcity and geopolitical uncertainty, continues to threaten food resilience across MENA. This column explains how an inclusive trade policy can play a key role in making the region’s food security less vulnerable to shocks.

The political economy of algorithms in the Middle East

The Middle East is entering a new political-economic era – one in which algorithms, data and artificial intelligence may become as strategically important as oil once was. Across the region, governments are investing heavily in digital infrastructure, smart governance and AI-driven economic transformation. This column outlines how AI and algorithmic governance are reshaping power, inequality and state capacity in the region.

The risks of a two-speed AI economy in MENA

Much of the debate about artificial intelligence in the Middle East and North Africa focuses on how many jobs it will replace. As this column explains, the more important challenge is that the new technology is likely to create a two-speed labour market, where countries with the capacity to invest in digital infrastructure and skills move rapidly ahead while others struggle to keep pace. Unless governments combine credible national reforms with targeted regional cooperation, AI could widen, not reduce, the economic divides across MENA.

From mega-investment to mega-productivity: closing MENA’s conversion gap

Across the Middle East and North Africa, governments are investing heavily in infrastructure, technology, diversification and new industries. Yet capital accumulation alone does not guarantee productivity growth. As this column argues, the region’s deeper challenge is its ‘investment-to-productivity conversion gap’: ensuring that large-scale investment translates consistently into stronger firms, technological diffusion, skills and better jobs. A different metric of success is required: not how much capital is deployed, but how much productive capability that capital leaves behind.

Sanctions and conflict: why corruption changes the equation

Why do sanctions produce such different political outcomes across the countries that have been targeted? This column reports research examining the role of pre-existing corruption in shaping the relationship between sanctions and subsequent conflict or political instability. The evidence indicates that trade sanctions are associated with higher conflict-related deaths where pre-existing corruption is high.

Why energy efficiency still struggles to attract finance in Egypt

Egypt has reduced energy subsidies and gradually adjusted domestic energy prices toward cost-recovery levels, improving the economic case for energy efficiency investments – but financing has not kept pace. Drawing on structured interviews with banks, developers and public officials, this column traces why energy efficiency projects in the country still struggle to attract capital, and sets out how a ‘financing ladder’ used elsewhere – from revolving funds to risk guarantees to green bonds – could close the gap.

The weak bread chain: cereal supply risks in six MENA economies

The Middle East and North Africa is one of the most food-import-dependent regions of the world, particularly for staple cereals such as barley, maize and wheat, and particularly in six countries – Algeria, Egypt, Jordan, Lebanon, Morocco and Tunisia. As this column reports, diversifying import sources has become an essential strategy for strengthening food security and improving resilience to geopolitical and climate-related disruptions.