The International Finance Corporate had sought to expand its support for the region’s private sector but it was hard to find good projects that did not involve investors with ties to troubled regimes or their leaders, Lars Thunell, chief executive, said.
Private sector investment is critical in the region which needs to create, according to World Bank estimates, about 40 million jobs over the next decade — the combined populations of Jordan and Morocco.
“One of the challenges for us going forward, now with changes in governments it is a little uncertain who are the people you can do business with,” he said, adding, “Who should we be supporting is an issue?” IFC commitments in the Middle East and North Africa have run at about $2 billion annually.
Remnants of the region’s business elite that profited from old party networks of former regimes are still present today and distrust of privatization and market reforms among the public runs deep.
Thunell said it would take time for the private sector to find its feet amid the uncertainty but emphasized that economic opportunities had to be inclusive.
Private investment rates across the region have stagnated at around 15 percent of GDP — half the 30 percent rate reached in fast-growing East Asia region, World Bank data shows.
A joint IFC and Islamic Development Bank report released late on Tuesday called for urgent action to tackle high youth unemployment across the Arab region. It shows that the private sector can be a powerful force in helping youths get the right training and skills.
As political turmoil engulfs countries like Yemen, Syria, Oman, Algeria and Libya, investors are holding back until countries’ political futures are clearer, with many businesses operating below capacity due to curfews and insecurity.
But, the biggest challenge for countries now is to get their economies back on track. Their youth want both more political openness and new economic opportunities, instead of the wealth divisions that grew wider over the years.
Thunell said there were signs that investors were returning or revisiting investment plans. IFC signed two deals last month with a bank and a paper company in Egypt, he noted.
He said IFC was seeking to support locally-owned small and medium-sized businesses by working with banks to provide credit structures for them and by supporting micro-loans that have helped young entrepreneurs in Latin America and Africa.
To attract foreign investors will mean overcoming perceptions of political risk and the question was whether governments will be able to build enough confidence to win over international firms, Thunell said.
The “litmus test” however is whether countries can convince Arab businessmen, who have held their money abroad, to invest it back into countries like Egypt and Tunisia, Thunell said.
“You don’t have to solve everything on day one but you need to show people there is progress,” he said.
IFC last week it would seek to raise up to $1 billion together with the Islamic Development Bank to leverage more funding for rail, road, electricity and other infrastructure spending as part of job creation efforts.
“There is no silver bullet. We have to work on all fronts,” Thunell said.
