Our thinking

The Maghreb, a slumbering economic potential…

According to the World Bank, the rate of job creation among private companies in the Maghreb does not size up to those of comparable emerging markets. One main factor behind this trend is an investment ecosystem led by traditional banks. This tends to lend itself more to the needs of larger organizations that are primarily state-owned and present less risk. As foreseen by world experts, the existing economic system in the Maghreb is not up to the challenge of responding to today’s needs. This context makes it difficult for SMEs and young entrepreneurs to source financing. It also lacks fairness and transparency, an environment where private businesses and investments thrive.

In order to remedy these issues, it is essential to foster a solid business and investment environment, which offers certainty and predictability for both foreign and domestic investors. This can be achieved through taking steps to restore or maintain economic stability and through an increase in private investment to spur growth. This also will trigger higher productivity, boost economic diversity and offer greater resilience against external turmoil.

The Maghreb has great potential when it comes to attracting investment, something which has not been fully taken advantage of. It is strategically located, as it is situated next to the largest trading area in the world, the European Union. It is also at the doorstop of the wealth of the Middle East and an ever-growing Africa. It has a young, and well-educated population and unlike many other parts of the world, North Africa’s labor force is growing- and will be for years to come.

Indeed, foreign direct investment flows have risen remarkably over the past two decades—from $3 billion USD a year during the early 2000s to a $12.3 billion USD peak in 2008. This surprising spike in activity surpassed predominantly pessimistic forecasts for the region due to the international financial crisis. It was, in fact, lower than in other emerging regions in Asia, Latin America, and Europe, and has since decreased. Investments in the Maghreb lack diversity, with the majority of foreign investments originating in Europe and being oriented towards energy and mining in either Morocco or Tunisia.

The Maghreb is taking important steps to improve its’ investment scene and business climate. However, it still must make vast strides to rid itself of long-standing obstacles and outdated attitudes. This will allow the private sector to grow more rapidly, to expand more sustainably, and to invest with a clearer and a more certain vision. Additionally, the Maghreb will be able to innovate freely, and to create jobs more aggressively for its people. This starts by eliminating a system of privileged connections to provide a just level playing field for all.

That can only be achieved through impartial regulations that economically make sense. This needs to be reinforced through better quality infrastructure, a fair and less bureaucratic tax and customs administration, a strong, independent, impartial judiciary administration, and of course, a financial system that supports productive activity and provides access to credit.

More open investment regimes mean integration and more access provisions- one of the main concepts behind the Arab Maghreb Union. However, this is not enough. To achieve meaningful change, the Maghreb needs to become more open to itself, as well. It can achieve this by removing barriers to trade, thus allowing for the free flow of goods and services.

The other key factor in this equation is is internationalization. When a company grows and breaks barriers to achieve transnational status, the entire region benefits through wealth creation, and knowledge transfer. This process starts by aiding small companies in expansion, and helping larger companies magnify their reach to neighboring countries and beyond. An easy way to achieve this is to offer standard investment practices across the region that can be promoted and integrated through vehicles such as international and regional private equity funds, mergers with international firms, and joint ventures, among others. As an example, countries with less advanced agro-business sectors (like Algeria or Libya) would benefit enormously from the knowledge and know-how that come with investments from Moroccan or Tunisian agro-business companies. Adversely, the opposite becomes true if we consider the energy and mining industries.

The other important element is diversification. In both sources and sectors of investments, diversification is necessary. To begin with, the Maghreb should remove its long-lasting dependency on Europe and begin investigating other sources of investments, like the BRICS, to learn and benefit from these countries’ emergence stories. To attract more investments, the investment climate needs to be improved upon, and skills and education need to be upgraded. Diversification can also help in developing investment niches in new and dynamic sectors such as data centers, software development and computing to move away from a primary focus on natural resources.

To sum up: it is essential that the private sector play an integral role in any economic strategy relating to the Maghreb. Opening up the region to investment lays the groundwork for its potential to be achieved.