While other emerging regions have been thriving, the Middle East and North Africa (MENA) region’s aggregate export performance over the past two decades has been consistently weak. Using detailed firm-level export data from Customs administrations, Champions Wanted explains why. One central finding of the book is that the size distribution of MENA’s exporting firms is suggestive of a critical weakness at the top.
With the exception of the top firm, MENA’s elite exporters are smaller and weaker compared to their peers in other regions. The largest exporter is alone at the top—Zidane without a team.
MENA countries have failed to nurture a group of export champions, which critically contribute to export success in other regions. Part of the reason behind this weak export performance is the lack of a competitive real exchange rate. The deleterious effects of an uncompetitive currency can be traced all the way down to the firm level, hurting expansion at the intensive and extensive margins and preventing the emergence of export takeoffs. The lack of heavyweight exporters at the top of the distribution also reflects the region’s failure to push for trade and business climate reforms energetically.
Finally, the region’s prevalent cronyism and corruption under pre–Arab Spring regimes (at least) confirms that business-government ties have led to distortionary allocation of favors and rent dissipation by beneficiary firms, with little evidence that those firms have developed into national champions or helped lift the region’s export performance. The possibility of state capture in itself should call for caution when advocating any form of government intervention. In contrast, some interventions, such as export promotion programs, show some effects on smaller exporters. However, because these firms are marginal in trade, such programs cannot be game changers. More broadly, the success of MENA countries in promoting export growth and diversification, as well as generating jobs, depends heavily on their ability to create an environment where large firms can invest and expand exports and new, efficient firms can rise to the top.
This book offers some policy leads on how to achieve this goal.
Chapters Key Messages
CHAPTER 1: One Champion, But No Team
Using detailed firm-level export data from Customs administrations, this chapter sheds new light on the issue at the micro level. We show that with the exception of the top firm, MENA’s elite exporters—the top 1%, which accounts for more than half of exports and export growth—are smaller and weaker compared to their peers in other regions. Thus, in MENA the largest exporter is alone at the top—Zidane without a team.
CHAPTER 2: Priced out of Global Markets
In this chapter we show how the deleterious effects of an uncompetitive currency can be traced all the way down to the level of the firm, hurting expansion at the intensive and extensive margin and preventing the emergence of export take-offs.
CHAPTER 3: Getting Policy Right
In this chapter we show that in an already competition-deficient environment, higher-than-average tariffs and restrictive non-tariff measures (NTMs) have further reduced domestic competition and thus export competitiveness. The high tariffs on intermediate products have also hampered firms’ productivity and export growth. In addition, contrary to widely-held views, regulatory modernization can help domestic firms overcome managerial failures and upgrade quality, in turn raising their performance.
CHAPTER 4: Industrial Policy in MENA: The Small and the Big
In this chapter we rely on firm-level analysis to assess the record of policy intervention in MENA and go beyond the anecdotes. MENA’s prevalent cronyism and corruption under pre-Arab Spring regimes led to distortionary allocation of favors and rent dissipation by beneficiary firms, with little evidence that those firms developed into national champions. In contrast, some forms of clinical intervention, like export promotion, seem to work. However, the effects apply primarily to small firms that are a tiny fraction of aggregate exports and cannot address key weaknesses at the top. In other words, ground-level policies may work, but they are not game-changers.