In a nutshell
Weather shocks, oil market volatility, a potential slowdown in global demand and increased global policy uncertainty all intertwine with a long history of sluggish economic growth in MENA; much of this lacklustre growth stems from the poor performance of the private sector.
To boost the performance of the private sector, MENA governments may need to rethink their role, notably promoting competition in markets, levelling the playing field for private and state-affiliated firms and fostering a business-friendly environment.
Businesses themselves can build capacity by improving their management practices and harnessing the untapped talent of women entrepreneurs and workers.
The global economy is facing heightened uncertainty, clouding economic forecasts. In our recently launched April 2025 Middle East and North Africa Economic Update , we report that growth in MENA averaged a modest 1.9% in 2024 and is forecast to accelerate moderately to 2.6% in 2025.
But growth forecasts for countries across the region are shadowed in uncertainty, given the potential impacts of changing trade dynamics on global growth, inflation and oil markets. Figure 1 presents an uncertainty index that reflects the prevalence of news coverage on topics pertaining to economic policy uncertainty. Trade policy uncertainty increased 60-fold between September 2024 and March 2025.
Figure 1: Heightened global policy uncertainty
Note: The Global Economic Policy Uncertainty index is a GDP-weighted average of national Economic Policy Uncertainty indices for 21 countries: Australia, Brazil, Canada, Chile, China, Colombia, France, Germany, Greece, India, Ireland, Italy, Japan, Mexico, the Netherlands, Russia, South Korea, Spain, Sweden, the UK and the United States. Each national Economic Policy Uncertainty index reflects the relative frequency of own-country newspaper articles that contain a trio of terms pertaining to the economy, policy and uncertainty. The categorical Economic Policy Uncertainty indices are a normalised index of the volume of US newspaper articles discussing economic policy uncertainty.
The new report maps out the potential channels of impact. Heightened trade policy uncertainty could have a negative influence on private sector decisions, especially about investments, market entry and exit, and productivity. In the near term, lower demand from major destinations could negatively affect those MENA exporters that are better integrated into international markets – even though trade liberalisation and integration are typically associated with higher long-term growth, albeit with distributional effects (see Figure 2).
Countries with significant oil exports are more vulnerable to developments in global oil markets, both through the impact of trade shocks on global demand and adjustments in supply. Vulnerability to trade shocks may also be higher when exports are concentrated in a few products or a few trading partners, as the lack of diversification limits the ability of the economy to absorb sector- or country-specific shocks.
At the same time, the ability to specialise in sectors where countries have a comparative advantage can lead to a more efficient global resource allocation, overall productivity and wage gains, as well as job creation. Through these channels, trade liberalisation and integration are typically associated with higher long-term growth and economic development.
Figure 2: Trade composition in the Middle East and North Africa
Note: The figure shows total exports as a share of GDP in 2022 for countries in MENA and for the median EMDE. Total trade is divided into four sub-categories: manufacturing; oil and gas; other commodities; others. These categories originate from SITC rev. 4 (Standard International Trade Classification, Revision 4). As per Eurostat definition, manufacturing trade includes SITC sections 5, 6, 7 and 8. Oil includes Section 3. Other commodities include Sections 0, 1, 2 and 4. Other goods correspond to Section 9. Countries are ordered in ascending 2022 GDP per capita (2021 PPP$). The median EMDE is the country with the median total trade as a percentage of GDP among emerging market and developing economies.
In a longer time horizon, trade shocks faced by other countries could also affect MENA indirectly through trade reorientation. Reorientation of global trade patterns could present some opportunities for MENA countries in key products or critical parts of different value chains, further leveraging their proximity to the large markets in the European Union. How these shifts unfold will depend on the global economy, as well as the policy responses of the main trading partners of MENA economies.
Weather shocks, volatility in global oil markets, fragility, a potential slowdown in global demand and increased global policy uncertainty all intertwine with a long history of sluggish economic growth in MENA. Since 2000, GDP growth in MENA has been lower than its median income peers.
Much of this lacklustre growth stems from the poor performance of the private sector. Labour productivity growth is largely declining across the region. Annual employment growth is below income peers. Few firms invest and innovate. There is little entry into and exit from markets (see Figure 3).
Moreover, there is a persistent divide between a small formal private sector and a large informal sector. Notwithstanding increased schooling, with lower secondary education completion rates averaging around 70%, the region has long underused human capital. Women are largely left out of the labour market.
As a result of these challenges, the private sector in MENA is ill prepared to deal with shocks such as conflict and extreme weather events, although there are hints that businesses adapt in the face of adversity.
Figure 3: Productivity, investment and formal training
Note: Data represent the latest survey year for each country. For Panel A, the figure shows the average of firms’ sales growth per full-time worker between the last fiscal year when the survey was implemented and two years prior using sample weights. For Panel B, the y-axis is the weighted average share of firms investing in physical capital. The x-axis is the log of real GDP per capita (in constant 2021 PPP$) of the corresponding survey year. For Panel C, the y-axis depicts the weighted average share of firms that provide formal training (using sample weights). The x-axis is the log of real GDP per capita (in constant 2021 PPP$) of the corresponding survey year. For both Panels B and C, the sample includes 153 countries, including 7 MENA countries.
To boost the performance of the private sector, governments in the region may need to rethink their role. Governments engage with markets in several ways such as employing workers, owning enterprises, shaping the business environment and conducting industrial policy. Promoting competition in markets, levelling the playing field for private and state-affiliated firms and fostering a business-friendly environment could go far toward unleashing the growth potential of the region.
Embracing data openness and evidence-based policy-making could guide the path forward, including the constant evaluation of industrial policy, which is a topic of debate among policy-makers and economists around the world.
In parallel, businesses can build capacity by harnessing talent. At the intensive margin, improvements in management practices – which account for about a third of the total factor productivity gap between the frontier and other economies – can pave the way for more innovation and growth. At the extensive margin, businesses can find more talent by attracting women leaders, who in turn will hire more women.
The region has the world’s lowest rate of women in the workforce – at 19%, well below the world average of 49% in 2023. Research estimates that closing the gender employment gap would increase income per capita by around 50% in the typical MENA economy.
Emerging evidence also shows that putting more women in leadership positions could bring more women into the workforce. In MENA, on average, the share of women workers in firms run by women is almost twice that in firms run by men, regardless of the sector of activity (see Figure 4).
But MENA economies have fewer firms with top managers who are women than their income peers. Even in Saudi Arabia, which has implemented important reforms that have increased women’s labour force participation, only 2.95% of firms have a woman top manager –lower than the high-income average of 18.7%.
Figure 4: Top managers who are women are rare, but they hire more women
Note: For Panel A, the figure shows the weighted average share of permanent full-time workers who are women (including both production and non-production workers) as a percentage of all permanent full-time workers (both women and men, production and non-production), separately for firms with a top manager who is a man and for firms with a woman top manager. For Panel B, the figure shows the weighted average proportion of firms with a woman top manager. The values refer to the fiscal year prior to the latest available survey year and are calculated using sample weights. Countries are ordered in ascending 2022 GDP per capita (2021 PPP$).
But it will take government action to increase the number of women managers in economies where men are unlikely to want to work with women, let alone be supervised by them. The MENA region has consistently scored the lowest in the Women Business and Law (WBL) Index over the past five decades, indicating that despite recent changes, there are still many laws that favour men over women.
Policies to remove some of the structural challenges women face, such as reforming laws that discriminate against women, could help to increase the number of firms with women managers. In summary, worldwide, businesses are a key source of productivity growth, innovation and jobs. But in MENA, the private sector is not dynamic. With limited productivity growth and segmented markets, firms in MENA are ill prepared to absorb shocks such as those arising from conflict and extreme weather events. A brighter future for the MENA private sector is within reach if governments rethink their role and firms harness talent effectively.
