Unlocking Growth: How MENA's Private Sector Can Drive a More Prosperous Future

The World Bank's April 2025 MENA Economic Update highlights the region's modest growth and underperforming private sector, urging reforms to boost productivity, inclusion, and resilience. Unlocking the potential of businesses especially through better governance and gender equity could drive long-term prosperity.

The Middle East and North Africa (MENA) region enters 2025 with a cautious sense of optimism amid a complex web of global and regional uncertainties. The World Bank’s latest economic update forecasts regional GDP to rise from 1.9% in 2024 to 2.6% in 2025 and 3.7% in 2026. Yet, these projections are clouded by the volatility of oil prices, shifting trade policies, and the fragile peace in conflict-ridden countries.

Growth across MENA has been uneven. Gulf Cooperation Council (GCC) countries like Saudi Arabia and the United Arab Emirates showed modest recovery, thanks largely to their non-oil sectors. Meanwhile, developing oil importers such as Egypt and Morocco faced slowdowns due to manufacturing bottlenecks and climate-related agricultural disruptions. In developing oil exporters like Iran and Algeria, voluntary production cuts under OPEC+ agreements restrained growth.

Conflict continues to deal punishing blows. Gaza’s economy collapsed by 83% in 2024, reducing its share of the Palestinian GDP from 17% to a mere 3.3%. Lebanon, reeling from five years of economic turmoil, has seen its GDP shrink nearly 40% since 2019. Syria and Yemen remain in deep crisis, with poverty, displacement, and infrastructure devastation rampant. Yet, political changes, such as Syria’s post-Assad transition and Lebanon’s new government, offer a flicker of hope for future stabilization.

The Missing Engine: Why the Private Sector Is Stalling

At the heart of MENA’s economic stagnation lies an underperforming private sector. The World Bank paints a bleak picture of declining productivity, low innovation, and inadequate investment. Labor productivity, measured by sales per worker, fell by an average of 8%, with Egypt suffering the steepest drop at 15%. Fewer than 22% of firms invest in physical capital, and only 14.5% offer formal training to employees.

Innovation is particularly scarce. Only a small fraction of firms report launching new products or improving processes. Foreign ownership and R&D spending, critical channels for productivity, remain below global averages. The region’s firms are not only failing to grow but also struggling to stay competitive.

Case studies from Morocco and Tunisia reveal different patterns of productivity dynamics. In Morocco, technical efficiency improved, but the most productive firms failed to expand their market share. In Tunisia, more productive firms grew, but overall efficiency suffered. Both countries exhibit low rates of firm entry and exit, signaling stagnation and a lack of entrepreneurial churn.

Segmented Markets and Untapped Talent

MENA’s private sector suffers from deep segmentation between formal and informal markets. Informality remains pervasive, accounting for up to 80% of employment in some countries. Lebanon, Jordan, and Morocco host large informal business communities, often avoiding registration due to bureaucracy or perceived lack of benefits. While informal firms are typically less productive, some, especially in Iraq, are competitive, pointing to the need for nuanced policy interventions.

Perhaps the most glaring exclusion is gender-based. At just 18%, MENA’s female labor force participation rate is the world’s lowest. Less than 6% of firms are led by women, though those that are tend to employ more women. Closing this gender gap could raise per capita income by as much as 50%. Even in countries like Saudi Arabia, where legal reforms have improved female participation, leadership remains overwhelmingly male-dominated.

The report emphasizes the economic imperative of empowering women entrepreneurs and leaders. Doing so offers a “double dividend”: more inclusive workplaces and faster overall growth.

Weathering Conflict and Climate Shocks

In a region already plagued by conflict, climate shocks are an escalating threat. Droughts, floods, and extreme weather events are becoming more frequent, further straining already fragile economies. These shocks often hit informal and small businesses the hardest, leading to job losses and revenue declines.

Despite this, some firms are adapting. Evidence from Tunisia and Iraq shows that businesses facing repeated droughts are modifying operations, cutting costs, diversifying supply chains, and investing in resilience, particularly in better-governed environments. Yet, these adaptations are far from universal. Access to finance, infrastructure, and sound governance remains critical to enhancing business resilience across MENA.

Reforming the Role of Government: A New Path Forward

To unlock the potential of the private sector, the World Bank urges MENA governments to rethink their role. Public sector dominance and state-owned enterprises crowd out private investment and limit competition. Improving “competitive neutrality” by treating public and private firms equally is seen as essential.

The report also cautions against poorly executed industrial policy. While government support can address market failures, it often introduces new distortions if not grounded in solid data and robust evaluation. Policymakers are advised to prioritize transparency, data openness, and regulatory reform.

Better data is fundamental. Much of the region’s policy debate is based on limited firm-level information. Expanding and opening up administrative datasets is critical for designing effective interventions and fostering a data-driven policy culture.