The MENA-OECD Investment Programme · 8 1. The Programme is owned and led by the MENA region: It was established on demand of the participating countries, who decide on the strategic

The MENA-OECD Investment Programme

Trends, Achievements and Challenges

Paris, 1 October 2009

Agenda

1. The OECD: For a better world economy

2. MENA-OECD Investment Programme: Strategy and Approach

3. Macroeconomic trends in the MENA region and the impact of the crisis

4. Appropriate policy responses in light of the global economic crisis

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OECD: For a better world economy

Established: 1961

Location: Paris, France

Membership: 30 countries

Budget: EUR 303 million (2009)

Secretariat staff: 2 500

Secretary-General: Angel Gurría

Official languages: English/French

Enlargement: The approval of so-called “road maps" marks the start of accession talks with Chile, Estonia, Israel, Russia and Slovenia.

OECD brings together the governments of countries committed to democracy and the market economy from around the world to:

• Support sustainable economic growth

• Boost employment

• Raise living standards

• Maintain financial stability

• Assist other countries' economic development

• Contribute to growth in world trade

Fast facts Our mission

The Organisation provides a setting where governments compare policy experiences, seek answers to common problems, identify good practice and coordinate domestic and international policies.

Source: OECD

Who drives OECD’s work?

CouncilOversight and strategic direction

Representatives of member countries and of the European Commission; decisions taken by consensus

Committees

Discussion and implementation

Representatives of member countries and of invited non-members work with the OECD Secretariat on specific issues

Secretariat

Analysis and proposals

Secretary-GeneralDeputy Secretaries-GeneralDirectorates

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Examples of OECD key outputs and achievements

OECD’s Freedom of Investment ProjectOECD countries are committed to an open and transparent international investment environment as the main promoter for job creation, more efficient resource allocation, and social and environmental progress. Since 2006, the OECD Investment Committee’s project ‘Freedom of Investment’ carries on a tradition of OECD dialogue on investment issues in OECD countries and in countries adhering to the OECD Declaration on International Investment and Multilateral Enterprises.

The OECD supports emerging market economies in getting closer to OECD instruments and standards. For example, Egypt became the first Arab and first African country to sign the OECD Declaration on International Investment and Multinational Enterprises, marking a new stage in Egypt's drive to attract more foreign direct investment (FDI).

Source: OECD

Improving transparency and exchange of information in tax regimesIn a report issued in 2000 on unco-operative tax havens, the OECD identified a number of jurisdictions as tax havens according to criteria it had established. Between 2000 and April 2002, 31 jurisdictions made formal commitments to implement the OECD’s standards of transparency and exchange of information.

PISAThe Programme for International Student Assessment (PISA) is an internationally standardised assessment that is administered to15-year-olds in schools. It responds to member countries’ demands for regular and reliable data on the knowledge and skills of their students and the performance of their education systems.

Agenda





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Objective of the MENA-OECD Investment Programme

• It aims at mobilising private investment – foreign, regional and domestic – as driving force for economic growth and employment throughout the MENA region.

• It contributes to private sector development through capacity building and regional support of reforms to improve the business climate. The Programme is part of the broader OECD-MENA Initiative for Governance and Investment for Development.

• The MENA-OECD Investment Programme was launched at the end of 2004 on demand of the participating countries and territories* of the Middle East and North Africa (MENA) region.

*Algeria, Bahrain, Djibouti, Egypt, Iraq, Jordan, Kuwait, Lebanon , Libya, Morocco, Oman, Palestine Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, Yemen. 7

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1. The Programme is owned and led by the MENA region: It was establishedon demand of the participating countries, who decide on the strategic directions of theProgramme. The OECD operates as partner, secretariat and policy advisor.

2. The Programme facilitates dialogue and peer learning within countries of the region andbetween the region and the OECD on investment related policy issues in the framework ofits regional expert Working Groups, Task Forces and Regional Centres.

3. The Programme follows a two-track approach which uses a sector specific approach onregional and country-specific level.

4. The Programme provides targeted capacity-building and support in reform prioritisationand implementation at national level.

5. The Programme cooperates with other regional and international institutions working onprivate sector development in the MENA region.

6. The Programme provides the opportunity to strengthen bilateral relations of countrieswith the OECD, for example through the adherence to the OECD Declaration onInternational Investment and Multinational Enterprises.

Key Success Factorsof the MENA-OECD Investment Programme

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Two Track Approach

MENA follows a “Two Track Approach”

The OECD offers its expertise in the creation of a Peer dialogue to foster regional integration

Common challenges that exist on the regional level are addressed through a comprehensive approach

Effective and sustainable process for regional co-operation, based on the Steering Group and expert Working Groups

Assistance in defining country-specific priorities for reform including recommendations of how to implement them (Business Climate Development Strategy)

Ongoing support in the implementation phase of policy reforms to remove sector-specific barriers to private sector development

Regional approach Country-specific approach

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Regional Approach : Organisation

STEERING GROUP

Promoting Transparent and open investment policies

(chairs: Jordan, Japan)

PROGRAMME CHAIR OECD COUNTRY CO-CHAIRArab Republic of Egypt United Kingdom

Regional and International Institutions

(ANNUALLY ROTATING)

Private Sector Stakeholders and Initiatives MENA-OECD Business Network

WORKING GROUPS

COUNTRY TEAMS

Encouraging Investment Promotion Agencies/ Business Associations

(chairs: Bahrain, Switzerland)

Policies for Financial Sector Development

(chairs: Saudi Arabia, UK)

Improving Corporate Governance Practice(chair: Lebanon)

REGIONAL INITIATIVES AND CENTRESEnterprise Financing Network

MENA Investment Centre (Bahrain)

Hawkamah Institute for Corporate Governance (united Arab Emirates)

Regional Tax and Financial Management Training Centre (Egypt)

Competitiveness Centre, TunisWorking on National Investment Reform Agendas, Domestic Constituencies

Providing Tax Framework for Investment (chairs: Egypt, Turkey)

Ownership by the region and oversight are ensured by a governance structure that involves a Steering Group, 5 Working Groups and Regional Centres

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Future focus

• Widen policy scope from investment policy to business climate policies, including infrastructure and humancapital development.

• Put greater emphasis on support in implementation of policy recommendations.

Examples of achievements

• Egypt: Adherence to the OECD Declaration on International Investment and Multinational Enterprises. Efforts to reduce exceptions to national treatment. One-stop shop concept will be implemented.

• Jordan: A new investment law is currently pending parliament approval. Jordan has applied for adherence to the OECD Declaration on International Investment and Multinational Enterprise.

• Morocco: Morocco has applied for adherence to the OECD Declaration on International Investment. The first Moroccan Code of Corporate Governance has been adopted recently.

• UAE: The federal government plans to introduce a new federal investment law and to define its relation to the federal company law, considering the opening of more sectors to FDI.

National Process:National Investment Reform Agendas

Country Coverage: Egypt, Jordan, Lebanon, Morocco, Oman, United Arab Emirates…

Workshop w/ national team and OECD

experts to prioritise investment policy

reforms and schedule reform targets.

Support in implementation

of reform and national capacity

building on demand.

Monitoring of results.

Establishment of national teams.

Examples of Country-specific Achievements

Agenda





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Both FDI and capital flows to major emerging market economies have been impacted by the economic crisis

Private capital flows (principally bank lending) to emerging markets are expected to lead to a net outflow of foreign capital in 2009

FDI flows to major emerging economics are expected to fall both in 2008 and 2009 while still remaining at historically high levels.

However, strong impact of the crisis on private capital flows.

Source: OECD Investment Division

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FDI Flows into the MENA region have been less affected than other regions but are expected to fall in 2009

Source: UNCTAD GCC: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, UAE, YemenNorth Africa: Algeria, Djibouti, Egypt, Libya, Morocco, TunisLevant: Iraq, Jordan, Lebanon, Palestinian Territory, Syria

Estimated drop of 30% in 2009

North Africa

GCC

Levant

Keeping open and transparent investment regimes in times of economic crisis and beyond

67.2

78.1

93.7

CAGR 2000-2008: 61.6%

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Current account balance of oil-producers are forecasted to drop significantly while that of non-oil producers should remain stable (but negative)

Alleviate the impact of the crisisthrough diversification of the economy

→Increase export competitiveness toreduce current account deficit

Source: European Commission 2009

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GDP Growth in the MENA region will still average around 4% in 2009

Source: IMF , OECD Source: ILO and IMF *estimates

MENA region has not been hit as badly as other countries

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MENA unemployment rates have decreased but are expected to rise in 2009 as economic growth is slowing down

Source: European Commission 2009 Source: ILO

Youth and women unemployment are both an economic and a social challenge for MENA countries

18Source: UN Population Division Statistics ILO: Global Employment Trends 2009

*age 15-24

Population by age group (%)

The number of labor market entrants is expected to risesignificantly as over 50% of the population is under 25 years

Better policies needed to translate a highpotential into economic growth

50%

Innovation in MENA is still below its potential

19Source: World Intellectual Property Organization Database

*Property Cooperation Treaty patents are valid in the 141 countries that ratified the agreement

4,888 18,813

Source: UN Arab Human Development Report 2009

Increased competition, freedom of investment andproperty rights protection with significantinvestment in human capital development required

More and better investment needed to moveup the value chain

Access to Finance still depends highly on Family and Friends

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255%

-84%

-51% -50% -50%

32%

-150%

-100%

-50%

0%

50%

100%

150%

200%

250%

300%

Family, friends Leasing arrangement

Local commercial banks

Trade credit Equity Internal funds

Sources of finance: % difference from OECD countries

Source: World Bank Enterprise Surveys. Data represents the percentage difference between MENA and OECD firms’ usage of the sources of finance. Data for MENA countries is for Algeria (2002), Egypt (2004), Oman (2003) and Syria (2003); data for OECD countries is for Germany (2005), Greece (2005), Ireland (2005), Portugal (2005), South Korea (2005) and Spain (2005). All sources of finance represented aggregated responses for both new investments and working capital except leasing arrangements (only represents new investments) and trade credit (only represents working capital loans).

Financial market development and better policies to ease access to finance foreconomic growth and employment

The MENA region still ranks high on the FDI Regulatory Restrictiveness Index

21Source: OECD 2007

The indicator aims to measure deviations from ‘national treatment’, i.e. discrimination against foreign investment, rather than the institutional environment in general;The measures are limited to overt regulatory restrictions on FDI, such as foreign direct equity investment limits, screening and approval procedures and other policy restrictions (national requirements, movement of people, input and operational restrictions).

Agenda





A positive reform agenda overall: The crisis as an opportunity to introduce better policies

• Resist protectionism by opening sectors previously closed to foreign investors in a bid to recapitalize ailing firms

• Ensure free flow of capital to avoid keeping it locked into unproductive uses

• Design emergency measures with a clear exit strategy and implement them in a manner that is temporary and transparent

• Link government assistance to restructuring, rationalisation and consolidation of the sectors concerned

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MENA Investment Programme Response

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• Business Climate Development Strategies (BCDS) are targeted at improving the business environment to increase investment and competitiveness and develop country-specific responses to the crisis

• The MENA Ministerial meeting (23-24 November 2009, Morocco) as an opportunity to send a clear signal to the international investor and business community

• Regional working groups and task forces to encourage investment through dialogue and peer review: Investment Policies and Promotion SME Policy, Entrepreneurship and Human Capital Development Tax Policies Financial Markets Corporate Governance Regional Task Force on Responsible Business Conduct

• The MENA Business Council to foster public-private dialogue between MENA and OECD companies and MENA government counterparts in order to spur reforms.

Annex

Impact of crisis Description

Potential for more cautiousapproach to liberalisation and reform in certain

areas

Financial crisis could make governments take a more cautious approach to liberalisation and reforms across the region in certain areas:

Privatisations – weak markets and weak investor appetite are delaying planned privatisations:

• E.g. privatisation of Kuwait Airways initially called off in October 2008, citing market environment

• E.g. sale of two mobile phone networks in Lebanon shelved due to crisis

Financial sector reform – Bail-outs and outright nationalisation of banks in North-America and Europe may have created potential uncertainty about financial sector liberalisation

PotentialLong-term Impact of Reform Delays

Delayed economic reforms would have long-term negative effects:

Long-term growth and investment

• Reform delays are likely to reduce growth and investment in the long term, even during economic recovery

Social effects - unemployment

• Aborted reform agenda will undermine region’s efforts to meet employment creation targets (80 million jobs needed over next 20 years)

MENA countries’ investment policy responses

Programme Working Groups: Crisis Response

Working Groups MENA-OECD Challenges

1. Investment Policies and Promotion

• Use the BCDS and OECD guidelines as instruments to maintain FDI inflows in the region and limit the impact of the crisis on structural investment increases;

• Improve national and regional incentives for foreign and domestic investment;• Further enhance OECD Principles for Private Sector Participation in Infrastructure.

2. SME Policy, Entrepreneurship

and Human Capital Development

• Further develop guidelines on SME linkages with FDI to limit the impact of the crisis on SME development in MENA countries;

• Further develop and disseminate overall guidelines on how to promote SME competitiveness, skills development and innovation.

3. Tax Policies

• Analysis of the effects of the tax system on debt versus equity firms’ decisions and its implications on debt reliance.

• Provide capacity building for policy makers to evaluate in the context of the crisisthe effects of tax policy options on revenues, efficiency, equity, distribution, investment, and labour (BCDS Taxation Toolkit).

4. Financial Markets• Further disseminate guidelines on how to increase access to equity finance; using

all different options available nationally and internationally (BCDS Financial Markets).

5. Corporate Governance

• Use the OECD Principles on Corporate governance to ensure the implementation of standards and notably address the specific challenge of State-Owned Enterprises in the MENA region;

• Further develop and disseminate recommendations on key elements of insolvency legislation within the MENA region.

Dimension 1: Investment and Business environment

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To stimulate investment MENA countries areusing incentives in the form of tax or customs dutyreductions to mitigate effects of the crisis.

Regulatory reforms being considered includethose intended to improve and the businessclimate by reducing administrative barriers andrelaxing restrictions on inward investment.

Greater emphasis is being placed onpromoting specific geographic areas or zones fordevelopment.

Work with MENA countries on high levelDeclaration expressing commitment toopenness of investment and trade regimes;

Use the Business Climate DevelopmentStrategy (BCDS) to communicate continuouscommitment to reforms by MENAcountries;

Re-assess existing investment promotionand investment incentives in the light of thecrisis (for example use of Free EconomicZones);

Support MENA countries in regulatoryguarantees and frameworks for improvedrisk perception, such as: internationalinvestment agreements, PPP frameworksetc.

Adapt existing guidelines on access tofinance for SMEs in an environment ofliquidity challenges for enterprise finance.

MENA countries’ measures Programme strategy

MENA Programmes’ Responses in Key Policy Areas

Dimension 2: Corporate Governance

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Use the OECD Principles on Corporategovernance to ensure the implementationof standards and notably address thespecific challenge of State-OwnedEnterprises in the MENA region;

Continue work in the task force oncorporate governance of Banks;

Further develop and disseminaterecommendations on key elements ofinsolvency legislation within the MENAregion;

Ongoing support to MENA countries indevelopment of corporate governancecodes (e.g. developed Moroccan code forlisted companies in 2008).

MENA countries’ measures Programme strategy

Financial crisis has revealed weaknesses incorporate governance across the region, inparticular on issues of transparency, protection ofminority shareholders and responsibilities ofboard members.

So far there have been no specific corporategovernance related policy responses, apart fromongoing projects independent of the crisis,although officials from the region mention theneed to strengthen corporate governanceframeworks as a key area of work in response tothe crisis.


Dimension 3: Taxation

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… MENA-OECD held a session on “TaxConsiderations in Responding to the GlobalFinancial Crisis” in January.

Some key components of MENA-OECDstrategy: Coordination of centralgovernment fiscal reform with reforms atsub-central level; Consider how a proposedfiscal plan interacts with fiscal plansadopted by others, desire to avoid beggar-thy-neighbour policies; Multi-year fiscalplanning, transparent, flexible, realistic, andcredible.; Pro-growth fiscal package of fiscalreforms, tax and expenditure programmes.

Analysis of the effects of the tax system ondebt versus equity firms’ decisions and itsimplications on debt reliance.

Provide capacity building for policy makersto evaluate in the context of the crisis theeffects of tax policy options on revenues,efficiency, equity, distribution, investment,and labour (BCDS Taxation Toolkit).

MENA measures Programme strategy

Given the market environment, existing taxincentives are unlikely to be dropped and may beextended. This includes tax incentives targeted atFDI, tax incentives for exports and tariffs onimports.

Some fiscal expansion programmes are alreadyplanned across the region, propping up demand asthe economy weakens. The effects ongovernments’ debt position are likely to besignificant, given the simultaneous fall in publicrevenues from taxation.

Active discussions about new revenue sources toalleviate strain on government budgets. In the UAEthe introduction of a value-added tax is beingdiscussed.


Dimension 4: Capital markets

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… A Capital Markets Task Force has beenestablished within WG 4 as a platform forpolicy dialogue on stock market and bondmarket development

Various Task Force activities scheduled for2009, including a conference hosted byQatar as chair of the Capital Markets TaskForce. Main focus of conference is onregional regulatory response to crisis,regional cooperation and medium-termdevelopment of capital markets

Leverage of BCDS Financial Markets chapterto assess state of capital markets

OECD currently developing a major efforton Financial Market Regulatory Indicators;Analytical framework to be leveraged forMENA-OECD dialogue

MENA measures Programme strategy

In the current market environment – majorstock markets have contract by more than 50%;considerable exposure to overseas investments byMENA banks - governments have turned to adiversified set of policy responses:

Monetary policy adjusted across the region, e.g.Egyptian rate cuts the first downward adjustmentsince 2006

In several countries systematic recapitalizationprogrammes of banks initiated (e.g. QatarInvestment Authority)

Use of Sovereign Wealth Funds to prop up stockmarkets

Governments willing to take equity stakes incompanies to compensate for lack of bond marketliquidity


Regional Centres

Centres Proposed Regional Activities

MENA Investment Centre,Bahrain

• Investment policy and promotion training• Hosting the MENA-OECD Enterprise Financing Network• Providing research and data collection capacities, OECD Depository Library

Hawkamah,Dubai

• Hosting Working Group 5 of the Programme• Providing training on corporate governance standards• Support dissemination, drafting, implementation of corporate governance codes

Tax and FinancialManagement Centre,

Egypt

• Provide training on tax administration, modeling of tax policy alternatives, and international tax instruments

• Building up research capacity on regional trends in tax policy reforms.

Centre for Competitiveness,

Tunis

• Publish regional competitiveness report;• Collect best practice on how MNEs grow in MENA;• OECD Depository Library

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Anthony O’Sullivan

Head of DivisionPrivate Sector Development DivisionOrganisation for Economic Co-operation and Development (OECD)

[email protected]

Alexander Böhmer

Head of UnitMENA-OECD Investment ProgrammePrivate Sector Development Division

OECD

[email protected]

Contacts

Documents

The MENA-OECD Investment Programme · 8 1. The Programme is owned and led by the MENA region: It was established on demand of the participating countries, who decide on the strategic